Financial uncertainty is perhaps the biggest headache for freelancers. Not only are we constantly seeking new clients and revenue streams, but also there’s a fear we won’t get paid for that big project. Managing cashflow becomes an art form and our wellbeing can suffer.
Having freelanced for the last 20 years, I’ve developed some tactics for reducing the risk of non-payment.
When taking on a new client, explain your payment terms in writing. Ideally, you’ll have a least a brief contract, but an email will suffice. The standard is usually 30 days for companies. Some will only make payment runs once a month, so there’s no chance you’ll get paid any quicker.
If you’re working with individuals, it’s reasonable to request faster payment. After all, they should have the funds when they booked you. I stipulate 10 days, although most people pay me within 24 hours.
Thanks to the Late Payment of Commercial Debts (Interest) Act 1998, you can actually levy a financial penalty for tardy clients. This is 8%, plus the Bank of England base rate (currently 0.75%). Here’s how it would work if you’re owed £1,000:
You can also charge a fixed fee to cover the cost of debt recovery. The amount depends on the size of debt:
|Amount of debt||What you can charge|
|Up to £999.99||£40|
|£1,000 to £9,999.99||£70|
|£10,000 or more||£100|
Make sure you include both the terms and the penalty on your invoice. To claim the interest and fee, you’d need to issue a new invoice for the adjusted amount.
Here’s the wording I use on my invoices for larger clients:
My payment terms are 30 days. Please be aware that according to the Late Payment of Commercial Debts (Interest) Act 1998, freelancers are entitled to claim a £40.00 late fee upon non-payment of debts after the stated period. At this point, a new invoice will be submitted which includes the fee. If payment of the revised invoice is not received within a further 30 days, additional interest will be added to the overdue account. This is charged at a statutory rate of 8% plus the Bank of England base rate of 0.75%, totalling 8.75%. Parties cannot contract out of the Act’s provisions.” (Based partly on a version generously shared by @mj_sprackland on Twitter.)
This worked a treat on a client a few years ago. They’d always been slow to pay, meaning I had to nudge them repeatedly. The threat of an ever-increasing invoice turned them into reformed characters.
Of course, you need to follow through with the penalty, else this is no more than an idle threat.
If you’re working with large companies, they’ll probably need to set you up on their finance system before you can get paid. I have no idea why, but this seems to take weeks. They’ll need details from you and might also ask you to complete a tax questionnaire (this is to absolve them from any responsibility for your tax affairs). Make sure you’ve done all this before you start work, otherwise it’ll hold up payment of your invoice. Wherever possible, request a purchase order. And find out who’s responsible for you getting paid – this might not be the person who commissioned your services.
If your prospective client is a limited company, they’re legally required to submit accounts to Companies House. You can check online to see whether they’re in financial difficulty. For example, it’s a red flag if their accounts aren’t up-to-date. Struggling companies tend to just keep going until suddenly they don’t have the money for payroll, then the staff scarper. Suppliers aren’t usually a priority.
Consider how much risk you want to take, especially if it’s a big project. You could ask for at least some of the money upfront – a good idea anyway if you need to buy materials or will incur other expenses.
I learned this the hard way. Back in the 90s, I worked like the clappers on a website, including all over Easter weekend. As an urgent project, I was charging a premium and had many plans for how I was going to spend the money. When an envelope came through the door, I thought it was a cheque (this was 20 years ago). Sadly, it was a letter from the liquidators. Instead of £2,000, I’d be receiving just £16. I still feel quite queasy now.
Had I poked about online, I’d have discovered that the business was carrying massive debts and was unlikely to keep going. My contact there – with whom I’d enjoyed a very friendly relationship – gave absolutely no hint. Boo.
So, contemplate the risks of any project, particularly in the current economic climate. A client’s worth precisely nothing if they can’t pay you.
Actually, be annoying. This is your livelihood, so don’t make it easy for defaulting clients to ignore you. A company in trouble will try to delay payment as much as possible. They’re also likely to prioritise creditors who keep pestering them. Enforce your terms and be formal. You might use a process like this:
We’d like to think that we do a good job, then we get paid. Unfortunately, it doesn’t always work that way. I experience problems very occasionally these days, and it’s usually due to cumbersome systems in large organisations. In these situations, I request payment upfront, charge a higher fee, or don’t work with the client again. I’ve dropped a few clients along the way, but this has freed up time to find better clients.
You deserve to work for people who respect your time and expertise. Good luck with getting paid.
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If you used to be an employee, one of the perks you’re missing is a workplace pension. While this isn’t as exciting as free gym membership or fancy coffee, you could notice the difference in a few decades’ time. It’s mandatory for employers to enrol their staff in a scheme. There’s currently no such requirement if you’re self-employed. This doesn’t mean you can ignore your pension, though. You’re completely responsible for your own retirement savings, so it’s crucial you make a plan.
In this post, I’ll explain the steps you should take towards saving for a pension.
To qualify for the full state pension, you need to have made 35 years’ National Insurance (NI) contributions. While you were an employee, this would’ve happened automatically. As a self-employed person, you must sort it out yourself.
If you’re a sole trader, you pay Class 2 and Class 4 NI contributions annually through self-assessment. Class 2 contributions of £3 per week are required if your turnover exceeds £6,365; once it hits £8,632, you pay Class 4 contributions – 9% of your profits up to £50,000, and 2% beyond that point. For more information, visit the Government’s National Insurance page.
Directors of limited companies who pay themselves a salary make contributions through payroll. The threshold for paying NI starts at £8,628. Accountants often advise company directors to pay themselves this amount as a salary and the rest in dividends. This means you won’t owe any NI or income tax, but the Government makes a contribution on your behalf. If you’re not paying yourself a salary of at least £6,136, you won’t build up qualifying years for the state pension.
You can check your state pension projection on the Government Gateway. This shows any gaps in your record and you get the opportunity to ‘buy back’ those years. It’s much cheaper to make contributions as you go along, though. Even if you qualify for the full state pension, it’s currently worth only [cgv weekly-state-pension] per week. You’ll almost certainly need some extra pension provision.
It’s time to dig out those old pension statements. Most of us can count our employers in double digits, so you might have lots of tiny pots scattered around. They might look insignificant, but could add up to a substantial amount – especially if they’re left to grow for a few decades.
Can’t find your statements? Try the Government’s Pension Tracker. This is definitely worth doing. Fifteen minutes’ work could yield thousands of pounds.
Once you’ve totted up your existing pension pots, you can see whether it’s enough. If you’re not sure what income it’ll provide, read my guide on working out how much you need. There’s probably some way to go, so you need to start boosting your pension.
My earlier post on Building Your Assets explains the different types of pension available. As you’re self-employed, you no longer have an employer making contributions to your pension pot. This means you’ll have to stash away even more each month. The good news is that your pension contributions are tax efficient – when you pay into a pension pot, the Government refunds the tax. For higher- or additional-rate taxpayers, this is a significant perk.1
If you are the director of your own limited company, you can make employer contributions to yourself as an employee. Yes, that does sound odd. So, these contributions count as a business overhead and aren’t subject to corporation tax. This is usually more tax efficient than making personal contributions from your salary or dividends. Your accountant can advise you on the best setup for your circumstances.
Sorting out a pension probably feels like yet another item on your to-do list. It’s worth prioritising now, though, as you need time for your pension pot to grow. The later you start, the longer you’ll be working. Even if money is tight, consider investing £25 per month. You can increase the amount once your business is flourishing. And don’t forget to factor in this cost when deciding what to charge your clients.
Some moderate discomfort now means you can look forward to a comfortable retirement before you’re 95.
As a financial coach, I can guide you through the process of your pension healthcheck. By explaining the options available and using forecasting tools, I support you in making an informed decision that’s suitable for your situation. I never recommend a specific product or course of action. If you require advice rather than coaching, you should see a qualified financial advisor. They’ll either recommend products on which they receive commission, or you’ll pay a fee for independent advice. Please contact me if you’d like a free 30-minute chat about pensions or any other aspect of financial wellbeing.
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If, like me, your work mainly involves sitting in a chair, you might not perceive it as particularly risky. However, it’s likely you’ll need some insurance to protect you against legal action. Anyone involved in giving advice and providing services has the potential to make mistakes – and mistakes can be costly. In this post, I’ll explain how you can protect yourself with Professional Indemnity and Public Liability insurance.
Professional indemnity insurance protects people and business who provide specialist services. This can include advice, such as legal, design, and accounting; it also applies to more physical activities, including physiotherapy, hairdressing, or tree surgery. These are all occupations where clients could claim the service you provided lost them money or harmed their reputation.
In this event, a professional indemnity policy pays for a specialist solicitor to defend you and also covers other legal fees and any compensation. You’ve probably watched enough telly to know that a court case could consume a lot of time and money, even if you’re exonerated. Having a robust policy in place means you don’t have to worry about a claim taking over your life.
Naturally, the cost depends on the amount of cover and the riskiness of your business. For instance, if you’re a hairdresser, often the worst you can do is give somebody an unexpected mullet. They might need to wear a hat for a few weeks, but it’s unlikely to threaten your business. However, more specialist hairdressers who do perms and colours have access to potent chemicals and could cause lasting damage if something went wrong.
So, before speaking to an insurer, have a think about the type of work you do. What could go wrong? What situations could significantly impact upon the client’s livelihood? How much would it cost to put it right? Large multinationals are likely to be more litigious and to demand higher compensation. Indeed, bigger clients often ask for proof that you’re indemnified.
Check that any insurer understands your business. A cheap standard policy might mean you’re inadequately covered. And that’s a complete waste of your money. Speak to insurers on the phone and explain what you do. If your job is unusual, they’ll often consult underwriters before offering you a quote. Getting the right cover means peace of mind. Your professional association can probably advise on suitable cover and even perhaps offer a discount.
Since specialising in financial coaching, the cost of my insurance has increased significantly. Although I’m not giving advice, the fact that I’m even discussing money with clients makes it riskier than other forms of coaching. Financial advisors pay even higher premiums, as they’re directing clients to pursue a specific course of action.
Probably. The insurance needs to be in place when the work is done and when the claim is made. If the problems only come to light a few years later, you’re still liable. If you no longer have professional indemnity insurance, you’ll have to cover any costs yourself. Essentially, you need to protect past, as well as current, work.
Some insurers allow you to hibernate policies. This means you’re temporarily covered for past, but not future, work. The cost of premiums could be halved. You can switch the policy back on at any time. There’s also run-off cover for those who’ve stopped working altogether but require ongoing protection for past projects. This is required for professionals such as architects, doctors, and chartered accountants.
Public liability insurance protects you against third-party claims of physical damage to people or property. You’ll need this cover if you visit clients or if they come to your premises. Again, the cost depends on the type of work you do and the environment in which you operate.
My policy covers me for workshops I run for different clients around the country. Their own insurance usually excludes external trainers, so I’m sometimes asked to provide a copy of my insurance certificate when agreeing the terms of the work. My sessions are fairly sedate – the biggest risks are probably damage caused by an extravagant arm gesture or blinding someone with my laser pointer – so the level of cover is relatively low. If you’re a fight choreographer, there’s a much higher chance of somebody losing an ear.
I’m also covered for clients who visit my office for coaching. I can’t imagine how I’d physically injure them, but you never know. I’m pleased to report an unblemished record so far, with no fatalities. As with professional indemnity insurance, consider what could go wrong and how much that would cost to fix.
Professional indemnity and public liability insurance might feel like yet another business expense. However, having this protection in place means you can focus on what you do best. For a relatively small monthly outgoing, you’ll have a legal team ready and waiting to fight your corner.
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Get in touch for a free no-obligation chat to see whether some coaching could help you plan your business.
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