Unless you are a particularly successful freelancer, it is likely that you do not have a sufficiently large cash flow to get by without getting paid on time. After all, you have bills to pay and mouths to feed; all of your creditors expect to get paid on time, so why shouldn't you?
The good news is that with just a few simple steps, you can help speed up delivery of payment of your invoices, and avoid acromonious run-ins with your clients.
Define your terms
It is important to define your terms and conditions for payment on your invoice and, ideally, in any written contract you have with your client - such as a commission form. Confirmation of commission forms are also a good idea to clarify your position on the allowed usage of your material, to assert your copyright, and to clarify the details of your commission such as rates. Although they are more commonly used by professional press photographers (the smart ones at least), there is no reason why freelance journalists should not be designing their own commission forms and supplying them to publishers (rather than having terms imposed upon them by publishers' own documentation).
The wording on your invoice should state your payment terms and also define a deadline by which your client has to put, in writing, any queries they have about your invoice. The latter will put you in good stead if your client later decides to dispute the invoice. The terms should also include the rate of interest you will charge for overdue payments; legally you are entitled to eight per cent per annum above the Bank of England base rate (ie if the base rate is four per cent you can charge 12 per cent PA).
Make your terms the boldest item on your invoice. It is also a good idea to include the actual due date.
For example:
Terms: Strictly net 30 days from date of invoice - payment due XX/XX/XX. Any queries with this invoice must be made in writing within seven days from date of invoice. Under the terms of the Late Payment of Commercial Debts (Interest) Act 1998, interest will be payable at 12 per cent PA from date payment is due (30 days from invoice date).
Credit control
Having taken all the necessary steps to ensure your terms of business have been clearly stated to your client, your first step after 30 days have lapsed from the date of your invoice should be to issue a statement. Statements are a bit like invoices, but less specific. They should list all outstanding invoices by your invoice number and amount, and indicate the amount of interest accrued. They should also be addressed to the accounts department of your client, rather than the individual who commissioned you. Hopefully this will highlight any problems such as the invoice never having made it to accounts, and also helps to avoid it being personal.
Most accounts packages, such as MYOB for example, make it quick and easy for you to issue statements. If you make a point of setting a regular date in your diary to print them off, it need take only a few minutes to print off a few sheets, stick them in envelopes and put them in the post. Or, better still, fax them to your client's accounts department.
It's up to you how long you wait before the next step but if, say, you have sent a statement every fortnight for another 30 days and still have not received payment, then it may be time to get on the telephone. Generally speaking, it's probably best to start with the accounts department. There are a few commissioning editors around who will be diligent and professional enough to do your money chasing for you if you ask them, but most will probably have enough on their plate with their own workloads. As it's important to avoid upsetting your main point of contact, ring accounts first. Make sure you get the name and position of the person you talk to, and log the time, date and essence of the conversation you have with them. There are a number of responses you might get:
1. Your invoice has not been received. Offer to fax them a copy or personally address one to them in the post by recorded delivery, on condition that they agree to pay immediately.
2. Your invoice has not been received and it needs to be authorised by the person or department who commissioned you first. In this case, you may have to go back to your main contact and find out why the invoice has not been authorised and passed on. But it's worth pointing out to your accounts contact first that perhaps it should be encumbent on them to do the chasing, otherwise their organisation is likely to incur additional costs (more about that later).
3. Your invoice has been processed and will be paid on such and such a date. It's up to you, but you could press them for the interest to be added to this amount, but they might ask you for a separate invoice for it. If it's just a matter of a few pence, it's probably best to write it off. Assure them that they will be held to their promise, diarise the date and call again if the obligation is not met. You can also suggest they pay by BACS (electronic bank transfer), if they don't do already.
4. It's company policy not to pay invoices for 60 etc days. Politely point out that the law says 30 days and you will be abiding by the law. If they do not settle within (you choose) number of days, your solicitor will be issuing a seven-day notice, followed by a county court summons (more on this later).
5. "The cheque is in the post." Ask for the cheque number, when it was dated and when it was posted. Also check to see where it was posted to, in case it has been sent to the wrong address. If they cannot tell you the cheque number, something is probably amiss.
6. "The person who signs the cheques is away." Ask them in that case what provision has been made to sign salary cheques and other important bills such as utilities. If these payments can be authorised, why not yours?
If the above steps still result in a failure to pay, it's time to get serious.
Legal action
The ultimate sanction for a bad debt is the small claims court. This need not be as daunting as it sounds. A good solution for initiating a legal process in the UK is an online solicitor such as Thomas Higgins. It's cheap, easy and very effective.
There are three stages:
1. Letter before action. For a fee of £2.00 GBP, Thomas Higgins will issue a letter on their headed notepaper requesting payment from the debtor within seven days.
2. Court action. A summons is issued to the debtor, for the amount of the debt, the interest and the court costs. At this stage, neither party needs to actually attend court. If no defence is made by the debtor, then the case automatically goes to stage three.
3. Judgment and execution. A county court judgment is made, and if the debt is less than £600, the local county court baillif will be instructed to recover the debt. If the debt is more than £600, the judgment is transferred to the High Court Sheriff for enforcement.
In practice, if you follow all the procedures outlined in this article, you will rarely get beyond stage one, if indeed you get that far. A solicitor's letter is usually enough to prompt most accounts departments to get their act together. One thing to bear in mind, though, is that Thomas Higgins does not send letters before action by recorded delivery. Make sure you definitely have the right address for your client, perhaps by sending your own special or recorded delivery letter beforehand, otherwise you will have problems further down the line. You can also do a free search on the companies house website to check address details ("Tools to help you" > "Find information on a company").
If it does go to court action, it's almost certain to be settled once judgment has been made, providing your client is still trading and solvent, and as far as you can determine, running a legitimate business. You will have nothing extra to pay if it is settled, but if a defence is entered by the debtor and you have to go on to a court hearing, there is the potential that you might have to bear the court costs if you lose. You will also have to pay the costs of the initial court action if you choose not to proceed with a hearing - usually less than £100.
If it goes to a hearing, both parties will be given the chance to make their cases in a fairly informal way in front of a judge. At this stage, you can also put in a claim for reasonable expenses for attending court and, if you win, the judge will include these with all court costs and interest accrued in his judgment against the debtor. If you lose, you will have to bear the court costs plus the expenses of your debtor. In your address to the judge, you should make your case as simply as possible, restricting your speech to a simple retelling of chronological events, supporting your case with written evidence such as invoices etc. If you have kept a log of all your dealings with your client as suggested earlier, this will be a simple matter. Avoid hearsay evidence, such as the relating of telephone conversations etc, and stick to the hard facts relating to your sale to the client and the key events of your attempts to get paid.
A defence is rare and usually only happens either because the client is unaware of the debt, or disputes it. The former should be unlikely if you have followed normal invoicing and credit control procedures. The latter can be a lot trickier, but if a client has not made his complaints clear to you, in writing, within the timescale you defined on your invoice, they will be on less firm ground. And it will certainly not look good to a judge if the debtor only disputes the debt in writing at, say, the stage where judgment has been issued after the initial court hearing.
Finally, the worst case scenario is if your client has gone into liquidation. Make sure the liquidator or administrator has the full details of your debt and that they acknowledge your claim as valid. As a freelancer, you will be low down on the list of priority debts and unlikely to be paid in full, if at all, but some recompense will be better than none.
Top ten tips
1. Don't get personal. Money is an emotive issue but try to stay calm, while still being assertive.
2. Focus on accounts departments rather than your original commissioning contact.
3. Employ a simple credit control procedure and keep dated records of all your dealings.
4. Use the law; it's there for you so don't be afraid of it.
5. Make it easy for companies to pay you. Supply your bank details so you can be paid by BACS (electronic bank transfer) wherever possible.
6. State your terms clearly on your invoice and, ideally, issue a confirmation of commission form detailing exactly what you were commissioned to do, the rate agreed, any additional terms such as kill fees etc. And get your client to sign it and return a copy to you.
7. Create a financial buffer. Try to put aside roughly 25 per cent of your income each month. This will both cover your tax bill at the end of the year and also give you some emergency cash while awaiting for invoices to be paid. Registering for VAT will also help your cash flow as you only have to pay the VAT back you have collected (17.5 per cent on all your invoices) every three months.
8. Don't be afraid to telephone - a regular, diarised campaign of calls will always yield faster results than mail. Be firm but polite at all times.
9. For larger projects spread over weeks or months, try to agree beforehand that payments be broken down into regular amounts. This will minimise your risk and help your cash flow.
10. When quoting for work, build in a hidden late payment penalty element, and offer to discount by that amount if an invoice is paid on time. If you are feeling really canny, issue the discount as a credit against future work.
Useful links
The Better Payment Practice Campaign
Statutory Interest Calculator (automatically calculates interest due without you having to research historic base rates)
Late payment of commercial debts calculator - from the UK's National Union of Journalists (NUJ)
NUJ Freelance Fees Guide
Money Claim Online - internet-based service for claimants and defendants
Thomas Higgins & Co Debt recover service - cheap, online small claims legal service
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