I recently read an article on Fresh Business Thinking about the problems that big businesses cause small businesses through the late settlement of invoices. Big, profitable organisations are responsible for the overwhelming majority of unsettled invoices and that’s problematic for SMEs.
The UK government has launched an initiative designed to help small businesses protect themselves against this sort of behaviour and it has got me thinking about why freelancers need a procedure for chasing late paying clients. Also, we need a procedure for what to do if they continue dragging their feet.
Note: This article is about late-payers, not those who have no intention of ever paying you.
Protect Yourself by Never Putting All Your Eggs in One Basket
The reason you are a freelancer is that you like the diversity and the ability to get rid of a bad client. You don’t particularly want to feel like an employee. When you put too much reliance on one client, that leaves the relationship open to abuse although it won’t in the majority of cases. Even with the best intentions in the world, if something happens to the client, you’ll lose your only source of income.
Set a Strict Payment Deadline
90-days is normal for most B2B invoice transactions, but for creative types like us, I strongly recommend setting a 30-day limit. The reason is that we’re largely dealing with small amounts of money. There is simply no reason not to pay an invoice valued less than £100 (around $125 USD) within a more than reasonable 30-day limit. If you illustrate and typically charge hundreds for a project, perhaps consider a 60-day limit. Whichever you choose, make your payment terms clear to the client.
Remind the Client Close to the Deadline
I know how it feels; you don’t want to seem like a pest. You don’t want to piss them off, but I’m afraid you’re going to have to say something in order to protect your business. Send a gentle reminder around one week before the payment is overdue. I state the value clearly and attach a second copy of the invoice. In most cases, it’s paid promptly and within time.
What To Do When They Are late: Your Choices
So, you have a client who has gone over your 30/60/90-day limit. They may be too busy, simply forgot, or have cash flow problems. You have two approaches you could use here for your T&C:
- Apply a daily small amount of interest. This won’t help if they have cash flow problems but those who use this method feel it’s the most effective as they’ll want to keep costs down
- My personal choice is to refuse to do any further work until the overdue payment is made – usually, after the second month’s invoice has been raised
If you’re worried about losing the work in the second instance, remember it’s not losing work if you’re not getting paid. They will have to go through the process of finding somebody else which can take time.
What If They Still Don’t Pay?
Here, we’re straying out of the realm of “late paying” and into “non-paying” which is a whole new ball game. You can either pursue payment through the courts or you could file a DMCA against the site where your content is uploaded. The law protects you now more than ever before.