Most freelancers are well-acquainted with the king-sized headache caused by late payment. Chasing down an invoice is part and parcel of freelancing, but there is a big difference between a spot of chivvying and the constant grind of pursuing money outstanding, sometimes for months.
The good news is that freelancers are entitled to recourse when being given the run-around by companies that owe them money.
So, what can be done? Briefly, freelancers can impose penalties on late-paying companies.
New invoice needed
First, freelancers can charge a fixed sum for “debt recovery costs”. On debt up to £999.99, this is £40. Most freelance invoices are within this range, although it is worth noting that, from £1,000 to £9,999.99, the charge is £70.
Second, freelancers can charge interest, set at 8% plus the current Bank of England rate, currently 0.75 per cent. If there’s a different rate in your contract, you won’t be able to charge the statutory rate.
Both the charge and the interest kick in when:
- the agreed payment date is exceeded
- or if no agreed payment date is made, 30 days after the customer gets the invoice
- or 30 days after the goods or services are delivered to the customer, if they are delivered later than the invoice.
The Government advises that the original invoice ought to carry a statement along these lines: “We understand and will exercise our statutory right to interest and compensation for debt recovery costs under the late payment legislation if we are not paid according to agreed credit terms.”
Exercising these rights on late payment requires the freelancer to issue a new invoice, beginning with a phrase such as: “Further to our previous statement that we will exercise…”
So, how big is the late payment problem and why do companies do it?
Cash flow trumps fairness
In a sense, the first answer provides the second. A 2018 Government estimate suggested a total £44.6 billion in outstanding late payments. The problem of late payment is so significant that it figures on the brief of the UK’s first Small Business Commissioner, Paul Uppal.
And that huge figure tells its own story as to why many companies delay and delay. The cash-flow management advantages of late payment are clear and, regrettably, from the perspective of an air-conditioned corporate headquarters, it seems this frequently trumps the fair treatment of freelancers.
Should a late-paying company ignore the new invoice, the freelance can either go to court (after taking legal advice) or take their case to the Small Business Commissioner.
There was good news for freelancers in June, as the Government announced that it is consulting on a range of new powers for the Commissioner, to ensure small businesses get paid on time. These could include fines for late-paying companies and binding payment plans.
Slowly but surely, an unfair fight is being evened up.