Just like any business person, contractors expect to be paid for the work they do and not being paid can have serious consequences. Without cash flow you may find it difficult to expand, bid for new tenders and operate effectively. Late payment is a fact of life in many industries but it isn’t something you should just put up with.
Here we’re going to look at how to prevent late payments and what you can do when payments become late. Before all of this though we need to discuss the rude factor.
The Rude Factor
When chasing for late payments it is very easy to feel self-conscious and even rude. Feeling awkward about chasing for late payment is common. It’s instinctual to find it hard to ask people for money but when invoicing for late payments keep these key points in mind:
1. You have completed the work therefore you need to be paid
2. You are only asking for what you are due
3. If you don’t ask, it’s very likely you won’t get
4. If anybody is rude it’s your customer for choosing not to pay you in time
Keep these facts in mind so you can stave off any worries about chasing when payments become late.
Preventing Late Payments
There are a few safeguards you can put in place to ensure you are protected against late payment and to encourage your customers to avoid it completely.
Begin by setting out terms and conditions. Terms of invoicing is something you can establish before beginning the work and ensuring you and your client both have a clear understanding of what’s expected should definitely help. Secondly, you could consider taking a deposit payment up front. Some contractors now expect full payment in advance but it’s more common to take a percentage of anything from 10-30% as a security against the work and full payment being delivered. It’s also good to remember that you are entitled to 8% plus the Bank of England base rate in interest for B2B transactions on late charges if you so choose to include this in your terms.
Another way of encouraging payment on time is incentivising the act itself. Perhaps offer a discount to customers on future orders/contracts who pay on time.
When a Payment is late
This is where it becomes awkward. You need to open communications with your customer to ascertain why they haven’t paid and when they plan to pay. In the majority of cases you will receive a quick apology and prompt payment but this isn’t always the case.
Having a standard script to hand can really help, it means you can cut out some of the awkwardness and just go with your standard template. Without sounding too demanding or aggressive you want to ensure you assert yourself enough to ensure your payment is made.
You may begin with a casual “Did you forget?” type message, depending on your relationship with the client but as the payment gets later you will need to get firmer and stand your ground. Asserting your right to interest and citing your original payment agreement will show you in a better light than vague emails about payments that haven’t been discussed in full.
If your efforts go unheeded then it may be time to bring in the professionals. You then have the option of engaging a solicitor or professional accountant to advise on your situation or opting for a debt collection agency. In both these instances you may find it leaves the relationship with the client irreparably damaged so it is often a last resort for most contractors.
Protecting yourself from the outset with a clear agreement of payment terms gives you a much stronger case if the worst comes to worst. In the majority of cases it doesn’t get to this stage but you’ll be more confident in yourself and your situation if you know you’ve done things by the book from day one. Remember, it isn’t rude to chase for what you’re owed.