Did you know that 35% of freelancers wait more than 1 year to get paid? Late payments are a common problem with freelancing and it can lead to a lot of stress. How do you handle it in a way that increases your chance of getting paid for the work you have done?
Help! My customer isn’t paying
Let’s walk through the steps you should take if a client isn’t paying you. We’ll cover how to chase an unpaid invoice, sending a demand for payment letter, using your insurance to assist you and options for taking legal action.
Step one: Have credit control procedures in place for late-paying clients
Dealing with clients who refuse to pay is a common theme for freelancers. This is why it’s important to have credit control procedures that you can turn to when there’s non-payment of an invoice. Your credit control procedures should include:
- sending late payment reminders
- enforcing late payment charges
- not releasing the work until the invoice is settled
- issuing a letter before action
Having terms in your contract around non-payment and interest will go a long way in helping you get paid. So will sticking to best practices like not handing over work until the balance is settled.
Sending late payment reminders
Always begin with a gentle reminder. Politely follow up with a client to query if they’ve received your invoice and highlight it’s now overdue. When writing these emails it’s important to keep any frustration at bay. You can remind them of the payment terms your client has agreed to in the contract, including details about the outstanding debt and any interest due on the overdue amounts.
The second late payment reminder will acknowledge that they’ve not responded to your first reminder. In this letter you can include that you’re open to discussing any issues they may have with payment. You’ll also want to state that failure to respond means you’ll have to consider starting debt recovery proceedings against them.
If you’ve received no response to your late payment reminders you’re now entitled to send a ‘letter before action’ to your client. In the letter before action (or letter of claim as it’s also known) you’ll highlight the consequences of non-payment such as court proceedings.
In most situations your client will settle the invoice without further action, but we’ll discuss the next steps below if not.
- Your legal expenses insurance gives you access to a dashboard of legal templates including debt recovery letters. The ‘letter before action’ template in the dashboard also includes the information sheet, reply form and financial statement form that you need to give to the debtor before you can go to court
- If this sounds scary, don’t panic! Your legal expenses insurance means you also have access to a legal advisor that can walk you through everything. David, a With Jack customer, spoke to us about how his insurance gave him the confidence to prepare for small claims court and that the legal jargon the helpline equipped him with was enough to intimidate his client into paying
- A simple but effective tip is to step away from the screen and pick up the phone. Don’t underestimate the effectiveness of phoning your client’s accounts department to check they’ve actually received your invoice
Step two: Check your insurance policy
Your insurance might be able to help depending on the reason for non-payment and what insurance products you have.
Professional indemnity insurance
Your professional indemnity insurance might be able to help if your client is unhappy with the work you’ve done. Their dissatisfaction with your work does have to be accompanied with some kind of threat or claim. For example, “We’re not happy with the work you’ve done so we’re not going to pay you. Now we have to bring other freelancers in to fix your work and we expect you to cover the cost of this.”.
The mitigation costs clause within professional indemnity insurance means the insurer will pay you the amount owed to you by your client if the insurer believes this will avoid a claim for a greater amount.
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.
- Here’s a real example of a With Jack customer using the mitigation costs clause to get paid
Legal expenses insurance
The likelier scenario is that a client isn’t paying for other reasons. If that’s the case there is another insurance product that might be able to help. It’s called legal expenses and it has a debt recovery service where a solicitor will chase your unpaid invoice for you. Here’s how it works:
- You provide the necessary information to the insurer; the name of the client, amount owed to you, professional services provided, how many days the payment is overdue
- The insurer assigns a solicitor and if the solicitor believes they have 50%+ chance of recovering your debt they’ll pursue the client for you
Whilst debt recovery can’t be painted as a quick fix (don’t expect the money in your account overnight), it’s a good option to use as a last resort.
We have had cases where the solicitor runs a credit check and the client has no money, or the contract is frustrated in which case they won’t pursue the payment because it’s unlikely they’ll be able to recover the money. However, we do find that having a third-party—especially a legal entity—send a letter to your client on your behalf sends a persuasive message and can spur them into paying.
Step three: Consider alternative options including legal action
Whilst your insurer can do some of the heavy lifting for you when it comes to late payment, there are other options for those that are uninsured or if your insurance can’t assist.
There are services like Money Claim Online and small claims court. Having spoken to a lot of freelancers who have chosen this route the general consensus is that there is a lot of admin and it is time consuming.
If you read the reviews of those who have used Money Claim Online the majority are negative due to how slow and frustrating the process is, and with small claims court even a ‘win’ doesn’t guarantee your client will pay you. Since you do have to pay a fee it’s worth weighing up whether the value of the invoice is worth it.
The sum owed might not be worth the emotional stress and financial resources meaning you’re better off focusing on your (paying!) clients. Can we use this experience as a lesson learned and have better processes in place to prevent this from happening again?
Lastly, many law firms offer a debt recovery service that works the same way as the debt recovery service included with the legal expenses product. The difference is that they’ll either take a cut of the recovered invoice or charge an upfront fee.
To recap, here’s what to do when a client isn’t paying your invoice;
- Send late payment reminders. If you need debt recovery templates you can use those included with your legal expenses insurance
- Enforce late payment charges and make sure you have payment terms outlined in your contract
- Hold onto the deliverables until payment has been settled
- Phone the accounts department to confirm they have received your invoice
- Check your insurance policy. If your client is unhappy with the work and have followed this with a claim or threat, your professional indemnity insurance might be able to help you. If your client has ghosted you or is just being difficult, use the debt recovery service as part of your legal expenses insurance
- If you’re uninsured or your insurance won’t cover you, consider pursuing the payment through Money Claim Online or using a debt recovery service which most law firms will offer
- Use this bad experience to review your processes. Is there anything that could prevent this from happening in the future?