August 5, 2020
To minimise this risk, you should make sure you and your customer both agree upfront on the precise nature of goods or services you will provide, and what they will pay you for it in return. If not, you could end up spending more than the contract is worth, not to mention losing valuable time chasing payments.
Patrick Murphy explores key considerations to help make sure your invoices are paid on time and in full.
Write it down. A contract does not need to be in writing to be binding; as long as there is an agreement between you and the customer for you to supply goods or services in exchange for money or something else of value – even if that agreement was made orally or by virtue of your conduct – you have entered into a binding contract. However, it is much harder for you to enforce a contract which is not in writing. Having a contract in writing means both parties are aware of its terms, and if any dispute arises there is documentary evidence to show what was agreed.
Make it clear. For the supply of goods this is straightforward – you need to set out the goods which you are supplying and how much those goods will cost. If you are providing services this can be more complex, so you should set out in the contract the extent of the work you have agreed to do for the customer for the fee agreed. Just as importantly, do not let mission-creep set in; clearly state in the contract that the agreed fee only covers the scope of the work agreed and nothing more. It is hard to prove that a customer is liable to pay for any work which goes beyond the scope of the contract, which may mean you end up working for free. If the customer wants you to carry out work which the agreed fee does not cover, make sure you update the agreement and agree on an additional fee before you start the new work.
Set payment terms. At the outset make it clear when you will issue invoices, how long your customer has to pay after you issue them with an invoice, and how much interest will be charged for late payment. Clearly state if you will be issuing more than one invoice, for example for a long-term service contract, and if possible, state how frequently you will issue invoices. You should also consider including a term stating that you will not carry out any further work or supply any more goods to your customer whilst they have outstanding invoices.
Get it agreed. Contract terms which have not been agreed by both parties are unenforceable. Ask your customer to put something in writing, such as an email or a letter, confirming that they agree to the terms of the contract. Alternatively, do it the traditional way and get your customer to sign a copy of the contract itself.
Issue an invoice. As soon as you can after supplying the goods or services, or at the intervals set out in the agreement, issue an invoice setting out in detail the goods or services supplied, an itemised breakdown of the costs, and a total figure. Remember to include VAT if it is payable.
Follow it up. Put the date which the invoice expires in your diary and get in touch with the customer immediately if it is unpaid after that date. Ideally make contact in writing and follow up meetings or phone calls with an email so you have a record of the attempts you made and the response you received. You may need this evidence later on if you end up in Court.
Do not delay. If your customer still isn’t paying, do not waste time before escalating the matter to some form of legal proceedings. Whilst generally you have six years from the date an invoice was payable to issue a claim, practically it may be too late by then: if a customer is not paying it may be because they are having financial issues, and the longer you wait the worse those financial issues might get. If a customer runs out of money after you have issued them with an invoice, the chances of that invoice getting paid even if a Judge finds in your favour are slim, so act quickly.
Consider taking money up front. It can help to ask your customers for payment before you carry out any work, even if it is just a percentage of the agreed fee as a deposit. That way you have money in the bank to put towards the invoice as soon as it is issued.
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