Late payments are stressful for any business owner. Not only do they negatively affect your cash flow, and consequently your salary, but you also lose time chasing payments – time which could have been better spent elsewhere. They are particularly problematic when you’re self-employed or running a small independent business – and tradespeople are hit harder than most.
The construction industry has the worst payment performance of any sector in the British economy – counting for over 30% of all late payments – according to the National Federation of Builders. And small and medium-sized construction businesses, including self-employed builders and tradespeople, are reportedly owed a staggering £30 billion.
Here’s six tips to help you ensure payments are made on time…
It’s always worth running a quick credit check on customers before agreeing to do any work. After all, they’ll have done their research on you – so why should this be a one way process?
If you’re entering into a business relationships with someone, you are entitled to know a little bit about their background – and, most importantly, if they are in a position to pay for your work. There are numerous online credit check companies, such as Experian, which let you check customers’ credit ratings.
It’s always best to be completely clear about your expectations right from the outset, to avoid potential payment issues in the future. When quoting for new work, make sure your quote clearly outlines exactly what is and isn’t covered in the. For example, will you be charging for travel time?
Customers may also think it’s not a big deal to delay a payment for a few days if they aren’t entirely clear on your expectations. To avoid this, make sure that your payment terms and preferred method are detailed in your quote.
Once a customer has accepted a quote – and you have both agreed what needs to be done, when it needs to be done by and how much it will cost – it is important to get everything in writing, in a legally binding contact. This will help to minimise problems further down the line.
The Federation of Master Builders offers advice and access to contract templates for members, which you can then use before taking on any building work – particularly helpful if you’re unsure of the legalities involved in a contract.
If you deliver work on time and to the agreed standard, customers will have difficulty finding a legitimate reason to delay payment. Always ensure you keep up your end of the deal – that way if late payments do occur, you’ll at least know you’re in the right if you need to take it further.
You could even get work ‘signed-off’ by the customer at each stage of the job, and ask for payment in stages – meaning there’s less room for complaints or issues when the job is finished, which could lead to delayed payments.
Once work is completed, you need to get your invoice out the door as soon as possible – so make sure you have a system in place that allows you to send invoices quickly and simply. You should outline the exact work you’re invoicing for, to ensure there’s no room for debate about what the invoice covers – which often leads to a delay in payment. And always try to get the customer to confirm receipt of the invoice, if possible.
If you’ve set up staged payments on a larger project, then be sure to set yourself reminders of what’s due and when. You could even create all the invoices for staged payments at the start of a job, with their expected due dates and a reminder for when those invoices are due to be sent. Our blog post about managing your accounts provides a list of useful software programmes for creating and managing invoices.
If you want to get paid on time, you need to make it clear to customers when and how to make payments. Do you offer 7 days payment terms? 14 or 30 days? Or do you expect immediate payment?
Delayed payments often arise from customers not realising that payments are due within a set time period, so try to avoid this situation by creating a sense of urgency. It’s also worth including your preferred method of payment in your invoice.
Sometimes you can do everything in your power to make sure payments are made on time, even making the process as simple as possible for customers – but they don’t always play ball.
Accept that late payments are going to happen from time to time, and define a simple process to ensure you are prepared to chase payments when necessary. For example, you could draft a letter or email that can be re-used anytime you need to chase a late payment, or have a system in place that alerts you when payments are overdue. You should also decide what – if any – your escalation procedure is going to be.
There are laws in place to protect you, including the Supply of Goods & Services Act 1982, but be sure to always call at reasonable hours, at regular intervals (don’t make calls immediately after another) and don’t make unsustainable claims about what might happen if they don’t pay. Stay calm and always keep a record of any calls or other forms of communication.
Offer the customer alternative payment options if necessary, such as instalments, and try to get an agreement in place for payment. It’s often a good idea to have a colleague or third party contact the customer, acting as an accounts manager, to maintain a professional distance.
If all else fails, the final resort is taking the matter to court. You can file a suit in the Small Claims Court without needing to hire a solicitor – and your case will be significantly stronger if you have signed contracts, a contact log and well-kept records to hand. You can find out more about the claim process from the Gov.uk website. If the amount is relatively small and fixed, you can also use the Money Claim Online service.