Final Notice: how to get clients to pay you on time
We're officially declaring 2021 the year all your invoices will be paid on time! 🎉 But this isn't just our wishful thinking. This summer, the gold standard of payment practices is changing in the UK. Here's what you need to know.
Last month (February 2021) the UK government announced that from the 1st of July the Prompt Payment Code which is currently voluntary will be strengthened.
What is the Prompt Payment Code
"The Prompt Payment Code sets the gold standard in payment terms and plays an important role in bringing about a culture change in payment practices."
Small businesses are the backbone of our economy, yet sometimes we're still not paid on time. Tide actually revealed last year that the average UK SME is chasing five outstanding invoices at any one time, using up an astonishing 1.5 hours a day.
What will change?
Right now Prompt Payment Code asks suppliers to settle 95% of invoices in 60 days, but from the 1st of July 95 % of invoices for small suppliers must be paid within 30 days. If you're a business supplier with more than 50 employees the target will remain 60 days.
The changes aim to make big businesses pay smaller suppliers on time, especially as cash flow remains a top priority for SMEs during the pandemic.
From the 1st of July 95 % of invoices for small suppliers must be paid within 30 days
How will they enforce this we hear you ask? Big companies who sign the Prompt Payment Code but breach its terms will be publicly shamed, and at a time when more and more consumers are choosing businesses to support based on shared values, we think it'll have a tremendous effect.
What you can do to get paid on time right now
Our culture and attitude around money remain a complicated one. Chasing invoices makes us feel strange and increases our prices often cause imposter syndrome to rear its head.
But there are simple steps you can take to make sure clients know their payment obligations as well as have all the support they need to pay you on time.
Set out your payment terms clearly in your Terms & Conditions
Your Terms & Conditions are a legally binding contract between you and your client, so making sure you set your payment terms out clear as day is your first step.
As a UK business, you have a statutory right to charge interest on late payments. It's recommended that you review each debt on a case-by-case basis because each of your customer relationships is unique, but if you do decide to charge interest you cannot charge late payment interest until your invoice becomes overdue which is why the payment terms in your Terms & Conditions are so vital.
You can use the Small Business Commissioner's payment calculator to check how much you're owed.
Turn on your automated late payment invoice email.
To help get your original invoice settled and avoid drafting a new invoice with the interest amount added, set your payment terms in your invoicing software and turn on your late payment email. It'll automatically email your clients which will save you time and take the awkwardness out of chasing clients.
Add card payment options
We're constantly surprised by how many stories we hear of big invoices being settled by credit card. But if paying you by card is quicker for them, why wouldn't they? It's a great feature to test because often you'll only be charged when the card payment option is used.
How to prepare for the Prompt Payment Code changes
Firstly, it's important to note that the Prompt Payment Code is not mandatory, however, you can find out if any of your clients are registered as signatories here. Even if you don't work with big suppliers, we think the Prompt Payment Code changes are a great opportunity for smaller businesses to update their terms.
If your current Terms & Conditions state that your invoice must be settled in 60 days, you'll need to update your Terms & Conditions so that your new payment terms state that 95% of your invoice needs to be settled in 30 days.
To change your Terms & Conditions you'll need to:
Update your Terms & Conditions document
Notify your clients promptly
Clearly explain why your payment terms have changed
Outline when their next invoice will be generated and when it will be due
Here's to a year of being paid on time!
Disclaimer: This blog post is intended to be educational and not specific legal advice. It is not a substitute for professional legal advice nor is it a solicitation to offer legal advice.