You’ve completed a project and the client has confirmed they are satisfied with your work. You send them an invoice, clearly stating your payment terms, and then on the date your payment is due... nothing. What do you do?

Unpaid invoices are the bane of freelancers’ lives. A study by small business data and insights company Ormsby Street found that UK freelancers are increasingly struggling with late or unpaid invoice payments. Around half admitted wanting to quit because of ongoing struggles and worries over late payments, with the average amount owed totalling £5,431. Worryingly, only 19% of survey respondents said their invoices were always paid on time, and over three quarters said that cash flow is the number one concern for their business.

It’s a big problem. Figures from Lloyds Bank Commercial Banking state that UK small-to-medium-sized businesses are owed more than £586 billion in outstanding invoices. But don’t lose hope. If you find yourself out of pocket, there are some steps you can take to reclaim what you are owed.

How do I collect an unpaid invoice?

Before taking more drastic action, make sure you’ve done the basics first.

Send a friendly reminder giving your client a chance to explain and hopefully pay up, repeat with a follow-up stating any penalties or late payment interest fees, and send a further last reminder setting a final deadline for payment. Log everything. You will need a record of all your communication with the client, so keep everything clear and polite.

If you’re unsure about what interest to charge, the government helpfully lays all this information out for you, but it is usually 8% plus the Bank of England base rate for business-to-business transactions. You can also charge a fixed sum for the cost of recovering a late commercial payment on top of claiming interest from it. Again, you can find out more on the government website.

If nothing results from your reminders, you can take further measures:

Seek legal advice

This may seem like a drastic and expensive step, but threatening legal action may be your best option. If your claim is under a certain limit, your best bet is to go through the small claims court. This involves a fee, but if you win you’ll get the fees back. Usually the threat of legal action is enough to make your client pay up. And if you need to take further legal action or consult a solicitor, the good news is that if you have Professional Indemnity (PI) insurance, your court fees will be covered.

Claim through your insurance

Did you know professional indemnity insurance covers unpaid fees in certain circumstances? If your client says they are dissatisfied with your work and threatens to bring a claim against you, professional indemnity insurance will pay out the amount you’re owed if it avoids a claim covered under your insurance for a greater amount. For example, if you’re a web developer and the client says you haven’t delivered all of the functionality they expected and refuses to pay and take you to court, the insurer can step in and arrange for a solicitor to handle future communications with the client. It will also pay out under the mitigation costs clause if you satisfy all conditions.

Even if you think you’ve left it too late to chase an unpaid invoice, chances are you still have a right to claim. In most instances, businesses are entitled to chase invoices that go back as far as six years.

How to avoid late payments in future

There are measures you can take to avoid the hassle of chasing late payments in the first place. Before taking on a new client, do your research. Are they reliable? Do they have a good reputation? You may also want to consider doing the following:

  • Run a credit check against your client
  • Clearly state your payment terms in your contracts
  • Request payment upfront or a deposit, especially for large contracts
  • Invoice as soon as you’ve completed the work and include information about late payment interest
  • Send polite payment reminders before the invoice is due.

Protect your business with professional indemnity insurance

Despite the risks they face, many freelancers and personal service companies still don’t consider taking out insurance to protect their business. But you could save yourself a great deal of hassle and money in the long run if you are covered properly.

Professional indemnity insurance costs as little as £12 per month and can not only help you quickly resolve matters like this but provide the emotional, legal and financial support you need.

To find out more about how we can help you protect your business, please get in touch and our team of experts here at Larsen Howie will talk you through your options. You can also find out more about PI insurance and other important topics related to freelancing in our Knowledge Hub.

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