As a freelancer you often have to be your own accountant, and the sad fact of the matter is this will probably involve a lot of invoice chasing!
When you go solo, having a single unpaid invoice can be disastrous! Unless you are doing very well for yourself, your cashflow will be carefully designed to make sure that you can make the rent, afford food, and actually live. When you depend on money coming into your account on the agreed date, finding that you are still waiting on an invoice can be one hell of a worry, but when you’re chasing after a particularly tricky late-client, there are some steps you can take!
If you have only recently gone freelance, you may not know about the Late Payments Directive, but this should give you more confidence than ever when it comes to taking the appropriate action on unpaid invoices.
Firstly, there are a few things you should be doing before it comes to late invoices! Ensure you have a legal document which can be signed before you undertake any work. At a minimum this should entail payment terms and late payment fees (and it goes without saying that you need to include how your client can actually pay you). Explaining the consequences of late payments in advance will make matters easier if a client later stalls on payment. But what are the consequences?
I haven’t been paid, what can I do?
To protect European businesses (small businesses and freelancers in particular) against late payments, and also to improve their competitiveness, the Directive was adopted on combating late payments in commercial transactions. This Directive puts in place strict measures which can help you get paid on time, cover your losses if payment is late, and more generally help you grow and plan for a sustainable business!
There are three main types of cost you can now add to overdue invoices:
1. Statutory interest can be added at 8% above the Bank of England base rate!
2. Fixed fees can be added to the total amount! [At £40 for debts up to £999.99, £70 from £1,000 to £9,999.99, and £100 for £10,000 and above.]
3. You can claim back your costs for chasing the fee! That’s right, if you have to spend more chasing the payment than the relevant fixed fee you can charge, you can now also claim back the remainder as ‘reasonable costs’.
The ability to reclaim these ‘reasonable costs’ wasn’t enshrined in law prior to the Late Payments Directive, meaning freelancers would have to wonder if they would be left out of pocket when chasing late payments, but no more! The payment of ‘payment-chasing costs’ is now down to the late-paying client, as it should be! No longer need a freelancer be left footing the bill for a late-payer.
Freelancing means following your passion in the world of work; now you can do this without worrying about incurring extra costs on chasing after pesky late payments. Any overdue invoices (where payment dates are clearly outlined in the signed agreement prior to commencing work) can be pursued safe in the knowledge that your debtor will have to pay up what is owed, as well as any fees or ‘reasonable costs’ their tardiness causes!