If like me, you have run or are running your own small business or working freelance you may recognise these feelings:
- the big business has all the power so if I don’t agree to wait 120 days to be paid I won’t get the work
- if I chase them up for that overdue payment I may not get any more work from them
- I’ll just have to wait because if I complain they’ll find someone else.
Some small business organisations say that their members are ‘bullied’ by bigger customers. They say small firms have no choice but to accept poor payment and other unfair contractual terms because the smaller supplier has less power and knows that if they push back the customer will just go elsewhere. 15% of firms owed money don’t chase up unpaid invoices. 28% of trades people lose £1,000 a year because they don’t chase up payments. Fear of the customer refusing to give them future work is the biggest reason cited for not chasing up unpaid invoices.
This is a sad state of affairs. It’s one of the main reasons the Office of the Small Business Commissioner was set up. It’s our job to change the ‘culture of poor payment practices’ in the UK. Here are some ways that shifting your mindset can also be crucial.
Confidence plays its part
Having been in the job for 9 months I’m not sure that the problem is entirely about bullying on the part of bigger customers. Sometimes it’s about a lack of confidence on the part of the small businesses too, to negotiate better deals. One example: a business owner told me he’d refused work because he wouldn’t get paid for 120 days. Because he had the confidence to push back and then negotiate, the customer agreed to pay in 45 days. The small supplier realised that the bigger customer needed his services and that give him power.
Recognise your value
Suppliers and customers need each other. Another example is the freelancer who turned down payment terms and walked away. The manufacturing company that wanted to hire him, found it very difficult to replace him and now treats him much better. It’s a valuable lesson for them both.
Small business owners are the talent that will help the bigger customer make money and build a successful business. If they fail, they can be very hard to replace. Good suppliers deserve to work with good payers. Payment practices are an ethical and reputational issue. Skilled employees and investors want to work for ethical companies that treat their suppliers well. #PayDontDelay. It’s better for everyone.
Be upfront about your position
Often the person who gives you the work has nothing to do with the payments. The person who pays you knows nothing about you, is paying according to the firm’s standard payment terms, and has no experience of how a small business manages cashflow or why they need to be paid faster. I’ve been told by payment people that it never occurred to them that a £300 invoice from a small supplier could be urgent given the amount is so small. They’re thinking about figures, not people. Don’t assume there’s always intent to behave badly. Sometimes people who’ve never run their own businesses or been freelance, simply don’t realise what the world looks like where you are. Explain and if that doesn’t work, be brave enough to walk away.
When you challenge bigger customers quite often you get a positive response. If you don’t, you can spend a lot of time chasing up unpaid invoices and that’s time you could use to find better customers who pay faster and treat you better, leaving you time to plan and grow.
Here are some proactive ways you can make it easier to get paid quickly and fairly by bigger companies:
- Negotiate the payment terms before you agree to do the work.
- If you will have to pay out for labour or materials in advance, ask for a proportion of the payment up-front to cover those costs.
- Get everything in writing and make sure both you and the customer sign and keep copies.
- Ask for explanations: what does ‘standard terms’ mean? Don’t assume it means 30 days. It could mean 360. You need to know.
- Ask for details of everything you will need to put on the invoice to make it ready to be paid. Mistakes on an invoice just give customers the excuse to delay payment.
- If you need a purchase order number, make sure you know how to get it and when it will be available.
- Makes sure you know when the invoice should be submitted, to whom and when the money will hit your bank account.
- Call the person whose name you’ve been given, after you’ve submitted the invoice, to make sure they have all the information they need, and check again the date on which the money will be paid.
- Form a good relationship with the person who pays you and give them no excuse to pay you late.
- If payments are late or unfair don’t wait before you act. The later you leave it before chasing a payment the less likely you are to get the money.