No matter what business you operate in, having unpaid invoices results in damaged cash flow, and wasted time chasing payment – which is equally damaging to your business as your are consuming valuable time that could be spent earning!
Unfortunately, I am writing this post based on a recent occurrence, in which I made a valuable learning experience – and hopefully by sharing this I can help you avoid having to face the same ordeal.
Protect yourself against non payment
Before it gets to the stage of having invoices not paid or ignored, there are several things that you can do to help prevent this happening to protect your cash flow.
1. Set clear payment terms
Before you take on a new client, make sure that you have a contract. This is absolutely necessary and should not be taken lightly. A contract should outline a) what you ARE doing, and what you ARE NOT doing for the client. b) What the client is required to do to enable you to complete your work set out in section a. c) How and when the client will pay you for the completed work. It should also explain what will happen if the payment terms are not met – for example interest if your invoice is paid late.
Setting clear payment terms will greatly reduce the client/customer making excuses on why they have not paid.
2. Only deliver the project when payment is made in full.
This is where I went wrong, please, please, PLEASE only hand over work once payment is made. In my scenario, I had been making updates to an existing site, where I was charging on an hourly rate. I made the mistake of allowing the client access to the website before payment was made – and ultimately I have been locked out of this site to revert the changes back.
Moving forward, I will be adding a clause to my contract that clients will not be given access, or access will be removed until outstanding accounts have been settled.
3. Make copyright clear
If you’re working in a creative industry like me, by default you assume copyright ownership for any designs/content that you create. My contract states that for any designs, content or media that I create for a project, I will retain the copyright for them until the client pays up – meaning that I could chase the client for copyright infringement as they are using my work (I would have to notify them that I am revoking any permission to use/display my work and allow them sufficient time to rectify this before action is taken).
Back to the contract again, make sure that you are covering yourself and have a clause that clearly explains who owns what and when (if) any ownership transfers will be made.
4. Take upfront payment
Where this is possible, always take payment upfront. People understand this, and most will pay you upfront if they believe in the results you will provide for them. If they aren’t happy with this, you either have not sold your service well enough or most likely they don’t intend to pay. Doing this guarantees that you don’t waste any precious time on d*cks that won’t pay you – who needs that anyway?
For all fixed cost projects, I have always been strict on taking deposits – if the value is under £650, I take full payment upfront, if it is over that, then I take a 60% deposit upfront, and 40% upon completion.
For hourly/daily rate projects, I normally bill for this once I know how much time was needed – I normally bill this way for minor changes, such as adding a new page. After 4 years of business, I am now able to confidently estimate the time this will take – I will now only be working on fixed project costs, and where I know that it will exceed the estimate, I will notify the client, and pause work until they pay me for the updated estimate.
5. Have a pot set aside
As ignorant as this may sound, it is massively important to try and reserve a bit of cash because ultimately if a client doesn’t pay, it can take a while to recover this money. If you’re in a position to do so, put some money aside, don’t call it savings, call it “the cash flow protection pot” and only touch it when cash flow is bad from the result of non-payers.
Recovering from non-payment
If you follow all of the above, you’re not guaranteed to completely eliminate non payment on your invoices – so it’s super useful to know what to do once you have an invoice that isn’t paid.
1. Reach Out
If you set payment terms like I do (14 days), it can help to reach out a few days before the due date just to make sure that the client has received the invoice, and doesn’t have any queries about it – I’ve had clients question an invoice before, they just didn’t let me know…
Reaching out protects you against daft excuses, and also acts as a friendly reminder.
2. Send overdue reminders
Sometimes, it is possible that non-payment is not done maliciously, especially when you’re dealing with super busy people like company directors, or overworked admin staff. Don’t get me wrong, I’ve had an invoice or two before where I have popped it onto the desk, and it got lost under the abyss of paperwork resulting in someone chasing me (which soon made me realise how bloody important it is to pay them as soon as I see them).
First Overdue Reminder
Your first port of call should be to send a friendly “hello, pay me pls” to your debtor to remind them that the payment is overdue, include how much the invoice amount is, when it was sent and when it was due.
Second Overdue Reminder
It’s recommended to allow a brief period of time before chasing again, the last thing that you want is to be taken to court for harassment – give it a few days before sending a second chasing letter. In the second chasing letter, make sure you include the payment terms, and calculate any interest owed to date – also specify how much interest will be charged for each additional day. You should send any reminders by both email, and letter to the registered office address, and send it recorded delivery to remove any excuse that the reminders have not been received.
Third Overdue Reminder
If at this point, you are still awaiting the payment – send a 3rd chasing letter. My 3rd chasing letter advises that if payment is not made by a specified date (normally 5 working days), then I will instruct a debt collection agency to further chase payment on my behalf.
3. Debt Collection
Personally, I would only advise pursuing this route after sending the 3 reminders because this is more than likely going to destroy the relationship between you and your client.
After hours of research (time I would have absolutely loved to spend building websites), I found My Credit Controllers, a debt collection agency based in Lincoln. They operate a platform called CreditXS, which allows you to upload invoices – allowing My Credit Controllers to chase the debtor on your behalf.
4. Small Claims Court
If you’re at this point, more than likely your client has no intension of paying for the work that you completed, so cutting ties with them is going to be more beneficial for you than it is the client.
My Credit Controllers will help you with this process, but ultimately you are free to seek support from any professional body that is qualified to represent you. Filing for small claims has a cost, you will pay this now – be aware that you will foot the bill for this if you are unsuccessful so speak with a professional and evaluate if the cost of pursuing is something you want to gamble. Bear in mind, that if you are successful, any expenses you incur chasing this will be added to the amount the debtor has to pay to you.
Non-paying clients are annoying and either have no respect for other businesses or are ignorant of the effects that this can cause. Do what you can to protect your livelihood and don’t make exceptions and stand your ground and as a result you will reduce non-payment.
Disclaimer: I am not a qualified professional in debt recovery, and this article should not be taken as gospel. This is purely informational and based on my own experiences and business model. If you have any doubts, you should seek advice from a debt recovery specialist.