British SMEs are owed more than £586 billion in outstanding invoices. Every time I visit any online freelance communities there's another post from a panicked freelancer because their client isn't paying them.
What should you do if your client isn't paying your invoices?
Fortunately, we have a few options available in the UK depending on the situation.
We're going to assume you've started simple. Sent a late payment reminder, a polite follow-up pointing out any penalties or interest as a result of late payment.
But if there seems to be no hope and you're now stressing, here are a few suggestions.
There are lots of debt collection services out there. We've heard good things about DebtCase, which integrates with your accountancy software. You can choose which invoice is overdue and it'll be assigned to a debt collection agency.
Using an online debt collection tool is an accessible way of recouping your fees, irrespective of the size of invoice.
Whilst you can always send reminders yourself, sometimes involving a third-party is enough to elicit action from a late paying client.
It's worth noting that if you go down this route there's the risk your relationship with your client will suffer. However, do you really want to work with someone who isn't paying you?
Small claims court
Pursuing late paying clients through small claims court involves a fee (if you win you'll get the fees back). You can complete the filing process online, but only if it's under a certain limit.
The process and limit differs for England, Wales, Scotland and Northern Ireland. There's an excellent article on Money Saving Expert that breaks down the cost and process for each nation.
Even if you are successful, it doesn't guarantee payment and further action may be required.
However, most of the freelancers and small businesses we've spoken to that have pursued this route are happy with the outcome. Much like using a debt collection agency, sometimes the threat is enough to make a client pay.
Professional indemnity insurance
Wait, insurance can help with unpaid fees? Yes, but only under certain circumstances.
All policies differ, but the one we arrange has a mitigation costs clause. This means that the insurer will pay what’s owed to you if your client refuses to pay your fees and threatens to bring a claim against you.
Here's the specific wording:
If your client is dissatisfied with your professional services rendered, refuses to pay for any or all of your fees and threatens to bring a claim against you, we will pay you the amount owed to you by your client if:
- it is possible to settle the dispute with your client by you agreeing not to press for the disputed amount; and
- We believe this will avoid a claim covered under this cover for a greater amount; and
- We have given our written approval to settling in this way and for this amount.
- Paul has created Overdue—a comprehensive list of tools, articles and templates for the 70% of freelancers who have trouble getting paid
- Use With Jack to arrange your insurance. Professional indemnity insurance starts at £14 per month
- Fluidly has provided late payment templates to help you kickstart communication with your client