How to tackle late paid invoices as a freelancer
Are late payments causing you financial problems? Here are your rights about getting paid on time
Late paid invoices can wreak havoc on your finances and personal life as a freelancer. The added struggle of higher interest rates and inflation from the cost of living crisis does not help. That’s why it is important to always have payment terms written in your contract and on your invoices. Then there’s no question about what your expectations are.
Before chasing an invoice, make sure it left your email outbox or invoicing application. If it has been delivered and the payment is still later than usual, then it might mean there has been a change of personnel or someone is on holiday.
People leave positions in companies all the time so ensure every six months that the same person in your client’s organisation is still responsible for paying your invoices. It is no excuse of course for them not to have something in place to ensure invoices are paid on time even when there is a change of personnel or someone goes on holiday, but it can happen. Approaching this calmly and professionally usually gets things sorted.
What’s the latest your invoice could get paid if not specified?
You can set your own payment terms, such as discounts for early payment and payment upfront. Unless you agree on a payment date, the customer must pay you within 30 days of getting your invoice or the goods or service. That’s according to the UK government.
You can use a statutory demand to formally request payment of what you’re owed if things become seriously late.
Unless you have specified otherwise payment terms for both public and private sector payees are 30 days in the UK. Some sources are saying private companies have longer to pay, but that is not the case anymore, especially if you are solo self-employed. Why should a small business be giving a larger one credit terms over 30 days?
“If you don’t agree on a payment date when you create an invoice, the payment is legally deemed to be late from 30 days after either the customer receives the invoice or you provide goods or service (if this is later),” says self-employed insurer Market Direct in its guide to unpaid invoices.
How much interest can you charge on overdue invoices?
You have the right to charge interest for late payment, but you can choose not to.
Here Markel lays out some important steps you can take if unpaid invoices become a problem.
“You have a statutory right to charge interest on late payments. The amount you can charge is the Bank of England (BoE) base rate plus 8%. So, for instance, if the BoE base rate is 0.75%, you can charge interest at 8.75%. This applies to sales to all businesses and public sector organisations. Note that it is not compulsory to charge interest ‒ you can decide if this is something you wish to do.
“If you are charging interest, you will need to send a separate invoice to your customer setting out the new amount due. To do this, simply add a new line specifying the interest owed.”
Can a freelancer claim debt recovery costs?
“As well as claiming interest, you can claim debt recovery costs,” writes Markel Direct. “The amount you’re permitted to charge depends on the size of the debt. For example, you can impose a charge of £40 for debts up to £999, while for debts between £1,000 and £9,999, you can charge £70. For debts exceeding £10,000, you can charge £100. If you do factor in these costs, this will also need to be specified in your new invoice.”
Prepare to work longer hours during the cost-of-living crisis
If you are having to chase invoices and take on more clients to pay the bills then expect to put in some unpaid hours to handle admin. If you feel you are working too many hours and not having enough financially at the end of it, then consider new ways to become more productive on work and admin tasks.
Check out these articles to help you make the most of this tough economic climate:
How to earn more in less time as a freelancer
Know Your Worth as a Creative Freelancer
How freelancers can come out stronger in 2023
The Freelance Jobs In Highest Demand For 2023
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Interesting article however its worth noting that the use of a statutory demand has legal complexities. Failure to adhere to those under the Insolvency Act can land the issuer with potential court fees for abuse of process.
Also, charging late payment interest is only applicable if the customer/client is another business, not a private individual. Just thought it might help any readers that are stuck in the predicament of being owed money.