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Client and Agency Payments
When you run your own limited company you take responsibility for completing timesheets, raising invoices on time and dealing with client and agency payments. Many clients and agents have strict payment and invoicing terms meaning that if you miss a deadline you could wait a long time for payment. Payments are made according to contract terms and conditions agreed when taking on an assignment.Direct Client Payments
If you agree a contract directly with a client you may have to contend with extended payment terms. Many clients hold onto monies for as long as possible to improve cash flow and earn interest on sums held with the bank. In some cases contractors have to wait 30, 60 or sometimes even 90 days to get paid.Many freelance contractors dream about taking on direct contracts as it often means cutting out the agency and possibly improving revenues by 10 – 20%. However, if you do decide to take on a direct contract the chances of arranging quick payment terms are normally pretty limited so beware.
Agency Payments and Factoring
Where an Agency is involved in a contract you are normally able to agree more flexible payment terms.One of the most important roles an agency plays in a contract is to receive money from clients and pay money to contractors. As detailed above in ‘Direct Client Payments’, clients like to arrange long payment terms such as 30, 60 or 90 days to improve cash flow and earn interest. For the majority of freelance contractors the prospect of being paid after 30, 60 or 90 days does not sit well and so agencies pay weekly, fortnightly or monthly.
For large agencies this is not a problem as they often have the liquidity to deal with short contractor payment terms. However for many smaller agencies the prospect of paying a contractor before they have received payment from a client is unrealistic. Therefore they turn to factoring companies.
Factoring companies allow agents to pay contractor invoices much quicker than would otherwise be possible. To do this the factoring company pays the agency the invoice sum, minus a small percentage. The factoring company then chases the client for payment.
If you have not been engaged upon a contract for a while it is a good idea to speak to the agency about agreeing more flexible payment terms, especially for the first few weeks of the contract.
Client or Agency Payment Issues
Payment Issues with a client or agent can be incredibly frustrating and as director of your own limited company it is your job to sort them out.Incorrect payments are the most frequent form of payment issue. Before you contact the client or agent try to work out the problem by:
- Checking approved timesheets against the sent invoice
- Working out the chargeable VAT to see if it has been paid (sometimes an agency or client will not pay the VAT on an invoice until they have received you VAT certificate)
- Checking overtime rates against the original contract
If you work out the problem you may be able to save a good deal of time going backwards and forwards with the client or agency accounts department.
The most worrying form of payment issue is the late payment. As a small company you may be vulnerable to late payments especially from direct clients. It is advisable to contact the client or agent immediately to discuss why a payment is late; more often than not it is due to a simple admin error. If you encounter ongoing problems you should highlight payment terms to clients, print and send terms and conditions with invoices, and if all else fails threaten legal action.
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