Late payments are arguably the worst part of being a contractor or owning your own limited company. In fact, late payments from clients has been sited as been one of the most common reasons for companies going under in the last few years. Luckily, most contractors who work through recruitment agencies don’t have as much problem in this area as most companies but for those who work for clients directly can often experience this delay.
Charging Interest on Late Payments
In 1998 the government developed a new set of legislation under the title of the “Late Payment of Commercial Debts (Interest) Act” which stated that any company who has not been paid within the 30 day time period from completion of work and submission of invoice can then charge an interest of 8% on the amount that you are still owed. You may decide to extend this deadline but 30 day’s is the minimum allowed under the legislation before interest is charged.
It can be a difficult process; a lot of contractors find it hard charging interest and chasing down payments because they don’t want to risk any future work the client may send them. The key is to find a happy medium – being able to chase these payments and give them warning of interest payments but doing so in a courteous and professional manner (a lot of individuals in this position can slip into a more threatening tone).
An important part of this is ensuring that you keep communicating with the client. For example, if the invoice is not paid on time then get in touch and ask if there had been any problems, if it is still unpaid send an email and call again. If it remains unpaid make them aware that it is standard procedure for you to add 8% interest if it is not paid by the end of the 30 day period.
Incentivising On Time Payment
An alternative method that some contractors and many companies use is to offer a discount or more favourable payment terms if they pay on time although for a lot of contractors on pre-agreed contracts this is not really an option.
If you are concerned about payment before you even begin the job but are offered an attractive contract, do a bit of background research on the company and it’s directors. When it comes to business you can never have enough research and by looking into the companies history (is it a new company or been established many years) and their financial situation (which can be done through several online companies providing instant credit reports on companies for as little as £2).