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Unpaid invoices, Financial Concept
7 min read

A Beginner’s Guide To Getting Paid On Time By Your Clients And Customers

Getting paid requires effort, organization and often persistence.

I’ve done it and I’m sure I’m not alone. I’ve celebrated the new piece of work that’s been offered and forgotten to ask the all-important questions: what do I need to do to get paid fast, and when will the money be in my bank account?

If you’ve just set up your business or decided to branch out and go freelance, you’ve got a clean sheet of paper, so this is your chance to avoid my mistakes and have all the jigsaw pieces in the right place from the beginning.

Most of us who have taken the plunge and are working for ourselves, do it because we love what we do. What we don’t necessarily love is all the paperwork and processes that should go alongside that, and we fail to create a professional operation where the business bit is given the same priority as the creative bit.

Getting paid fast and fairly is the most important aspect of your business and worth getting right before you do anything else.

If you don’t get paid it’s a hobby not a business.

If you don’t get paid quickly you could run out of money before the next job comes along.

If you can’t manage your cash flow you’ll have to borrow or go bust.

If not just you who is depending on you getting paid quickly and fairly, it’s your family, employees and their families, and your suppliers.

If you don’t get paid quickly and fairly you won’t know how much you can invest in your business, better equipment, updated skills, better wages, and materials for the next job.

Here are some of the key practical steps you need to take to ensure you get paid quickly:

 

Open a business bank account

Too many of us get paid and then think about the need for a separate self-employed business bank account. It can take a while to get it operating and in the meantime we get paid (if we’re lucky), put the money into the personal account, and then carry on operating that way.

Legally, you can use your personal bank account for both business and non-business transactions, but your bank’s terms and conditions may prohibit you from using a personal account for business transactions. There may be costs associated with using a business account but there are also benefits with lots of advice and support available from most banks when you need it. It’s also easier to do your accounts if you keep your business transactions separate from your household transactions.

 

Take advantage of technology

Research software packages or apps that take the time and effort out of preparing invoices and getting payments in. There are lots of options so this will take quite a bit of time but it’s worth the effort. Using the best small business accounting software for invoices and payments, or the human bookkeeper equivalent if you prefer, can save you a lot of time that you can dedicate to planning your business rather than chasing missing payments. Again there are costs involved but think investment rather than costs and the time saved (one business tells me he saves half a day a week) could be used to find new customers.

 

Get yourself up to speed with contracts

Every detail of the work and the payment terms should be written down in case there is a disagreement later. There will be a contract even if it isn’t in writing but if it’s not written what’s been agreed is very difficult to pin down. You could end up in a costly time-consuming dispute. If you are presented with a convoluted, legalistic contract and told to sign it, refuse to sign until everything has been clearly explained and you are sure what you are signing and are prepared to accept. You can ask for changes to be made.

 

Be prepared to negotiate better payment terms

If the customer says you will be paid as per their standard payment terms, ask what their standard payment terms are. They may mean that, as standard, they pay suppliers 120 days after they deliver the work. You need to know that. You may need to be paid much sooner.

Be prepared to push back. That can be scary because you feel that the bigger customer has all the power and will simply give the job to someone else, but you may not be able to pay all your own bills and have an income if you have to wait 120 days to be paid. You may be better off turning down the work and finding customers who pay much quicker. 30 days after the work is delivered is fair. Have the confidence to push back.

 

Put robust processes in place

You need to get correct invoices to your customers at the right time, to be able to check that payments arrive on the due date, and to chase up missing payments quickly.

How do you want to be paid? Make it as easy as possible for the customer to pay you. Don’t give them reasons not to pay. Mistakes give customers excuses not to pay. If there are mistakes on invoices you submit, by the time you chase up the payment, realise there’s a mistake on the invoice, and resubmit the invoice you’ll be treated as if you’ve just submitted the invoice and have to go through the whole waiting period again. Make sure the details of your bank or other payments options are on the invoice. No one is going to ring you up and tell you there’s a mistake or ask for you bank details.

 

Before you accept each new piece of work get all the details

Despite all the preparation, every customer will have their own processes for paying suppliers. Find out what information each customer needs on the invoices, how do I get a purchase order number if one is required, and what is the due date for the payment (is it 30 days after the invoice is submitted or 30 days from the beginning of the month after the invoice has been submitted?). A good customer will have an induction pack setting out all the information you need clearly and giving you a person to contact in their firm if you have any queries or if a payment isn’t made on time.

Find out who makes the payments. The person who gives you the work is highly unlikely to make the payments. You need to know who that is and to form a good working relationship with them. It helps if they know a bit about how your business operates. It can be tempting to want to appear to be running a bigger business than you really are, but if you go down that route the person who ‘signs the cheques’ can be forgiven for not realizing that your payment of £300 is more important to you and your business than the payment of £30,000 is to the much bigger firm with bigger reserves. After you submit the invoice check with them that it’s correct and has all the information they need. Check about two weeks before payment is due that the money will be paid into your account on time. Make it difficult for them to go home on a Friday and forget to pay you.

 

If the payment is late, chase it up straight away

The longer you leave it the harder it will be to chase. We hate doing it so we put it off. We keep giving it another day and another day. We worry that if we chase the payment, we’ll lose any potential future work. You need to be paid or you won’t be around to do any future potential work and your customer will have to go to the time and expense of finding a new supplier. Everyone benefits if payments are made on time. You need the certainty, or you won’t invest. Chase up the payment by politely suggesting there’s been a mistake or oversight and asking when you can expect the money.

 

There is help out there

If you do ultimately get into a dispute and the customer refuses to pay get help from the Office of the Small Business Commissioner. Most of the complaints that come to us are about payment terms with one side saying it was agreed that the payment would be made in 30 days and the other side saying they pay in 90 days. That’s where written contracts become so important.

 

Check out the reputation of the customer before you accept an offer of work.

There is a plethora of information out there that can help you make better decisions about who to work with. Check with credit reference agencies, the Prompt Payment Code, the BEIS publicly available data, and business organisations or trade associations to see if a firm you are thinking of doing business with is a good, fast, and fair payer. It may feel wrong to turn down work but avoiding a poor paying customer and a dispute over payments will ultimately make your life easier and could be a business saver.

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Liz Barclay 1

Liz Barclay is the Small Business Commissioner. The Office of the Small Business Commissioner (OSBC) is an independent public body set up by Government under the Enterprise Act 2016 to tackle late payment and unfavourable payment practices in the private sector.

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