Six anti-late payment strategies for contractors to employ

Whether it’s thanks to an east of England city known for its engineering prowess or the payment framework you’re on for your public sector work, it seems that late payment is increasingly threatening to take a chunk out of contractors’ profits, writes Lee Murphy, founder of contractor cloud bookkeeping specialists Pandle.

We’ve drawn up six sometimes overlooked strategies to help you get paid by your contract’s ‘due date’ -- mostly by managing your clients in subtle but significant ways.

1. Create a Payment Policy

Creating a payments policy that you agree up-front with clients will help head off many problems before they arise. If you have a ‘late payments’ policy in place as part of that, then you have the authority to enforce the rules, especially when you’re direct-to-client.

Asking clients to sign a payment policy at the start within the contract will ensure that they are aware of your Terms & Conditions. Include specific payments dates (these may vary depending on what business or sector you are in), as well as details of charges and interest for late payments.

You may also want to offer bonuses to clients who pay early. Offering a discount to early payers shows goodwill and should encourage clients to pay on time. Clearly you don’t want to lose money, so frame it with your current normal rate as the ‘discounted rate for prompt payment’ with the new ‘normal’ rate the higher one.

2. Be All About the Detail

Make sure your invoice includes all the correct information -- help your clients to pay you quickly by telling them how and where you want to be paid. For instance, simply having a bland description like “one day of work” on the invoice is not helpful to your client in understanding what they are paying for. Including specifics also ensures that if there is a query, everyone is clear what the invoice covers.

3. Cut Payment Days

It might be worth considering how many payment days you offer in your terms. It is likely that you, like many of your counterparts, automatically opt for a 28-day payment policy, but might it be worthwhile reducing that to 14 or even 7 days? Strongly consider setting shorter terms if it’s a small contract.

4. Set a Milestone Payment

If you are going to be paid for completing a specific but long project, asking for a deposit or phased payment on a contract that spans, say, several months ensures you get more of your money earlier.

This will ensure you are not left out-of-pocket should the work suddenly cancel, and it will give you a financial buffer should the final payment get held up.

Be aware, it may appear that working with larger companies carries a lower risk of not getting paid, but even big firms go bust now and again. When construction giant Carillion collapsed in January 2017, it was estimated that around 30,000 small firm suppliers were affected. The company, MPs said, enforced standard payment terms of 120-days on its suppliers, effectively using them as line of credit.

5. Be Methodical, Pro-Active

Finding the time to chase late payers may seem a low priority compared with actually working, so you need to be organised and methodical to minimise it.

If you prefer paper or Microsoft Excel, get payment dates diarised on top of making sure you regularly check and remind people. Don’t only start chasing when you realise your mortgage payment is due!

A more hassle-free solution is to use bookkeeping software as this will automatically keep track of who owes you what, and who is overdue when. Online systems like ours can even automate the process of chasing and reminding clients for you.

This is potentially very helpful because, in our experience, most of the time when invoices don’t get paid on time it is because of disorganisation or a slippery mind, rather than a desire to deprive anyone of hard-earned cash. Oh, and if you send a reminder a few days before the payment is due, you will generally get even more of your invoices paid on time.

6. 'Keep Calm and Chase On' (When Unpaid), While Knowing Your Options

If payments do fall overdue, start chasing early. Being owed money can be an emotional experience, but remember to stay professional and courteous. Being abrasive or rude will damage the relationship and may well discourage encourage a client from paying up.

If you do not like doing it, get someone to do it on your behalf. Also, considering creating an “Accounts@” email address for your ‘Accounts Team’ so your ‘chase emails’ aren’t in your name. Some contractors prefer this.

If a client fails to pay after sustained reminders and calls, and the ‘accounts team’ and you have escalated it to some senior client representative too, it is a warning sign that their cashflow is bad. At this stage, it is worth considering whether you want to keep the debtor as a client. 

Also at this point, you should start thinking about legal recourse. Going through the courts is a long process, but there are online services and companies which can help with chasing and collecting overdue payments. Before you engage these however, you might first consider the power of social media. It is remarkable how many businesses respond quickly when ‘called out’ on social media, having previously ignored all other avenues to settle privately.

Final Considerations

Despite the appointment of the Small Business Commissioner, getting paid can of course still be a headache for contractors and other self-employed people. Waiting for a client to settle an overdue invoice can be a frustrating time, especially when you have bills to pay yourself.

It is important to remember you are not alone and there is help at hand. It’s all important to remember that, while you shouldn’t show it, you’re right to feel angry when parties in your contractual chain pay late. Indeed, the Federation of Small Businesses estimate that around 50,000 businesses are forced to close every year simply because of late payments.

We recommend working on having good relations with your clients, as it will ensure a good flow of work further down the line, potentially from more than one source. And good relations also ensure that you won’t always worry about derailing your relationship in the instance that do have to query why you haven’t been paid. The advice in the above six sections should assist you, possibly none more so than ‘Be Methodical, Pro-Active,’ because often we find being organised is the best way to deal with all but the most difficult clients.