Dealing with late payments
Freelance designer Sophie Riano's experience of chasing an invoice

Based upon data from FreeAgent, only half of invoices were paid on time in 2020.

Only half. 50% of the time, our clients didn't pay us on time.

In fact the average delay, is 23 days, with 35% of freelancers having to wait more than a year to get paid. 

It's clearly still a huge issue for the self-employed, and not only does it affect cash-flow, it also causes a whole load of emotional and tangible impacts: the time taken up to chase the invoices; the stress of conflict with your client and if it'll damage the relationship; and even simple things like finding the right information on what you're entitled to.

It's not fair, and one of the ways we can work to improve things is by not accepting late payments, and taking action against clients who are bad payers - this means making full use of our legal rights to claiming late fees and surcharges, and not just accepting that its "part of the process".

Our full guide to dealing with late payments is available for anyone who is struggling with this topic, but we wanted to get stories from people who are taking a stand, as very few people enjoy conflct - what does it actually feel like to demand that payment. We spoke to freelance designer and active members of Leapers, Sophie Riano, about her recent experience of chasing an invoice.

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Matthew Knight: Sophie - thanks for sharing your story with us - but before we get started, are overdue invoices something you're having to deal with regularly, or was this a one-off?

Sophie Riano: Unfortunately more than it should happen. I would say about 80 % of all my contracts.

MK: Oof - that's a dreadfully high number - I can see why you've started to take matters into your hands - can you explain the process you went through to get you overdue payments sorted?

SR: After chasing the payments with the company multiple times, I emailed to let them know I will be exercising my right to claim indemnity for late payment since I was entitled to. Following the GOV advice on the Small Business Commissioner website, it was clear what I could claim. I then waited for the original invoice to be paid, and sent one separate invoice for each indemnity. (in this case, 2 invoices were to be paid, so I sent 2 separate indemnity invoices once they were paid)

MK: Did you charge both interest and a surcharge?

SR: I charged for two things: compensation and daily interest.

MK: What things had you put in place to enable you to claim those fees?

SR: Nothing. I have to admit I originally said to the company, I would not be sending any extra invoice for the first late payment. so I could have probably kept that as a word... but they were so unprofessional that I decided to do it anyway. Following one of the last communications with their account department, I sent a reminder for the unpaid invoices, and simply added this message to it: 'Please note I will exercise my statutory right to claim interest (at 8% over the Bank of England base rate) and compensation for debt recovery costs under the Late Payment legislation, if not paid according to our agreed credit terms.'

I honestly never realised how this is way more than a payment... It's a call for respect.

MK: It sounds like they had a pretty poor attitude and behaviours towards you - how did this make you feel, having to chase and charge penalties?

SR: It was awful and really stressful. The feeling of begging should not happen when exchanging a service. It was also during the Christmas holidays, so I kept receiving excuses about people being off, or Covid... It was really hard to keep my answers professional and not fall into the 'personal'.

MK: How do you think the client reacted to your chasing, and are you worried about your relationship with this client now?

SR: I believe the client didn't appreciate me chasing so much. They did make it sound like it was 'normal'. I just feel it could have been handled in a more human way. All answers have been pretty dismissive and cold. Christmas and Covid situation put aside, I don't think I should 'justify' why I should get paid for a service done a month ago, and so multiple times. as for the relationship with the client, I was obviously originally worried about how this could end, and potentially lead to no more work together. But I decided my rights were more important, and ultimately, if this is the way they decide to treat their employees/contractors, then I may be the one who will not want to work with them anymore. It was really a life lesson on how to stand up for your work/yourself.

MK: How easy was it to find out what your rights are and what you're entitled to?

SR: I have to admit that was the hardest part of the whole process. I have reached out to so many different people, including Leapers, to understand 'the best way' to do this. Unfortunately, it is quite disappointing to see that such important information was not explained clearly anywhere. Not even lawyers were able to direct me into the right information. As for the GOV website and HMRC, I wasn't really surprised to see it was nearly impossible to understand what to do. I did feel in a puzzled situation: I had all the pieces, but it was really hard to put them together in the best way possible.

MK: It does sound like it's hard to find good information - where did you find good advice?

SR: On Leapers! You shared the GOV link on how to claim for unpaid invoices, and I just winged it.

MK: What advice would you give to others chasing late payments?

SR: It's important to have people to talk to! but most importantly, CHASE ALL PAYMENTS! I never did before these ones, and I honestly never realised how it was way more than a payment... It's a call for respect for your work and services, and yes, ultimately a payment.

MK: Would you say that late payments are a minor frustration or a more significant issue for freelancers?

SR: Unfortunately, a major issue. freelancing is already hard enough without this. Everyone is shocked when I compare it to permanent staff not being paid at the end of the month, but it is exactly the same to me.

MK: Do you feel that late payments influence your mental health?

SR: Most definitely. It was really hard to stay focused, do things or work. And I bet I also was a nightmare for my partner, since all my conversations were about how annoyed and stressed I was about the situation...

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Sophie's experience is not uncommon - the lack of respect from a client when asking to be paid for services you provided over 30 days ago, the emotional load of leaning in to conflict and worrying about it damaging future income, the additional workload of researching and working out how to go about the process. Whilst Sophie's outcome was getting paid, I'd still say it isn't a positive outcome, considering the energy it consumed and stress it created. 

We spoke to Emily Coltman FCA, Chief Accountant at FreeAgent, and she had one simple piece of advice: "Prevention is better than cure".

Emily explains "Agree payment terms with your customer before you do any work, make sure they’ve seen, read and signed your payment terms and make it as easy as possible for customers to pay you, and if your customer is late with a staged payment, stop working on their project until they cough up!".

Here are our ten suggestions for laying the ground-work for never having to deal with a late payment:

1. Make sure you have a clear scope of work agreed with acceptance criteria - getting things in writing is essential, as is getting signed off when they're delivered.
2. Get your payment terms and contact details and on the system upfront, before you even start work.
3. Check the businesses' payment reputation and terms before you sign a contract - ask others within your community if they've worked with the business, or for larger organisations, check the Small Business Commissioner's website.
4. Reduce your payment terms to 14 days, or increase the frequency of your invoicing, i.e. weekly - it's better to invoice sooner, so at the very least, you'll receive the money sooner.
5. Consider an upfront deposit to start work for longer-term or larger value projects, and break the project into phases where signoff can be provided as you go - if they're not willing to pay a portion upfront, what might this say about their behaviours later?
6. Put regular check-ins to make sure you're on track for acceptance, so there's no debate on delivery - address issues early on.
7. Confirm acceptance of the invoice within 24 hours, use read-receipts or email tracking, and follow up with a call if you've not heard back.
8. Invest in a tool which automates invoice reminders, taking some of the headaches out of chasing, and send a note before the invoice is due as well as after. Many invoicing platforms do this for you, such as FreeAgent.
9. Have a defined process in place for starting work with a new client, and dealing with invoicing, reminders and remittance - so you can reduce the mental load of going through the process each time.
10. If you've previously worked with a client who was a late payer, consider whether you'd be willing to work with that same client again.

Emily concludes:

"If your customer persistently pays late or argues about a bill, are they really the kind of customer your business needs? Lots of small business owners think they’ve got no choice about who they accept as customers - yes you do - your business, your choice!"