Freelance contractors who work through their own Ltd Companies are frequently faced with a major problem: late payments. A large proportion of small businesses in the UK fail in their first year not because of unprofitability but because of cash flow difficulties. And this is hugely exacerbated by clients who fail to settle their fees on time. With credit becoming more difficult to obtain in the wake of the recession, this problem is even more pressing for the Ltd Company contractor.
Thankfully, there is an effective solution to hand. An experienced contractor, Brian McDaniel, urges the practise of prevention rather than cure. Mr McDaniel, who has freelanced for 15 years, suggests that much stress can be avoided by including a clause in contracting paperwork which spells out the consequences of late payment.
Specifically, Mr McDaniel advises freelance contractors to set out in black and white exactly how many days may elapse before a payment is considered late. The clause should also contain details of the consequences for late payment, which should become more radical in proportion to the lateness of the payment. In short, the later the client pays, the more he will be required to pay.
According to McDaniel, the art lies in formulating the consequences so that they are realistic but nonetheless formidable – clients should be left feeling that they will do everything in their power to avoid overdue payments. Communication to needs to be clear and unambiguous as well as frequent, he maintains: clients should be informed immediately when their payment is overdue. It’s also important for contractors to remain professional at all times and refrain from insults and threats. Most clients tend to respond when the clause is brought to their attention at the beginning of a work project.
