Thread: Self Employed-Any Tricks for getting paid on time

From the information you have supplied there are several issues raised.
Firstly, if this customer constitutes 90% of your income then unless you have the correct business structure, legally you may NOT be a contractor......you are an employee. This has all sorts of legal and tax ramifications.
Slow payers are not always bad payers. If an organisation is consistently reliable but slow in paying then the problem is how you cope with your cash flow. There are many ways to deal with this. Padding your quote is NOT one of them.
In the short term I would suggest you visit the ATO website as well as any Federal and State Government web sites that have an abundance of advice for small businesses. GOOGLE is your friend.
You also need to quickly seek advice from a small business adviser. Many of the financial institutions have a free service or your accountant may be able to suggest someone if he/she won't do it themselves.

Originally Posted by Tusker

1. Diversify, so you're not totally reliant on one customer. 90% is too risky.


Max P

I agree. If you have basically one customer, then you are not really self-employed. Most likely you are working for less than they would pay an employee who gets sick leave, annual and long service leave, leave loading ,overtime, superannuation.

All of the above options are probably effective.
They have varying effect depending on your client.

I think that you need to be very, very careful not to bite the hand that is feeding you. 90% of your feed is from the one person, that's big.
Don't do something stupid.

Make the distinction between a later payer and a defaulter. If you get paid anyway, pay sufficient attention to your cash flow until you diversify.
Get to the point where you have enough customers, and a good enough reputation to request payment on delivery.
If you continually get paid, but it is a little late - the business might be worth the frustration.

Is it easy to pay you? Paypal might help. A friend offers payment for goods and services through paypal with a 2% surcharge for the pp fee.

My father is self-employed. I remember all the horror stories of defaulting clients. you see, after your 'install' something in a house, it's a fixture and therefor the property of the house owner - you can't remove it. paid or unpaid. I still get the chills, now especially that I know how much cash was stolen from him over the years.

I wish i'd been at that function mrapocalypse was talking about.

You could envite them to go shooting for the weekend, right after they decline to pay or envite them to your local MMA club for a free introductory lesson (particularly effective if you're an instructor).

snip

Originally Posted by ivery819

Firstly, if this customer constitutes 90% of your income then unless you have the correct business structure, legally you may NOT be a contractor......you are an employee. This has all sorts of legal and tax ramifications.

Not strictly true. Employment arises from a common law employment relationship, ignoring Workchoices. That relationship doesn't depend on the number of customers.

I think you're referring to the PSI / PSB tests. If these come into play, the contractor status doesn't change, its just that deductions are limited to those of an employee.

Regards
Max p

I have been through the range of small clients and large and now I charge rates that mostly discourage smaller companies. As others have said, there is a difference between getting your money late and not getting it all. Small clients are more likely to default and since I have culled them I almost never have recourse to debt collection services.

This is how I handle it:
1. Have your Terms and Conditions of Trade well sorted. Get this written by your lawyer and arrange it with a nominated debt collection agency. Usually you will find that you can only claim collection charges when they comply with local statutes. Often you can only charge late interest if it is already stated clearly in your Terms and Conditions, and to do otherwise may be in breach of contract laws.
2. When an invoice gets to 30 days I send a friendly reminder notice that states the invoice number, date and amount.
3. 10 days later I send another that also mentions the last letter.
4. 20 days I send another, as above.
5. At 30 days past due I send final notice that warns that if the account is not paid within 7 days the account will be passed on to the nominated collection agency. This is followed a couple of days later with a phone call to the accounts payable department. That usually gets action quickly.
6. Encourage payment by direct credit into your account to minimise delays in processing and extra deposit charges.
7. Send monthly statements of account.

For small clients I usually charge cash up front, before the job is commenced.

Had the same problem when running our engineering business. We ovecame it by adding 10% to every invoice and quote and then giving a 10% discount if paid within 7 days OF INVOICE DATE - worked a treat. Those that did not pay on time and then took the 10% were put on STOP SUPPLY until the 10% discount they took was repaid. A sale is not a sale until you get paid for the goods or service.

This refers to post #25 above by Tusker, not to debt collection. The Qld. government is in the process of introducing, for payroll tax purposes, a classification of "dependant contractor" for allegedly self-employed contractors who work principally for one client. They will be classed as employees and the employer will have to stump up payroll tax. The segment that is thought to be most affected is the building industry where there are a significant number of sub-contractors who work only for one prime contractor and in most cases are labour only, or supplying only a minimum ampount of material, e.g. nails. The government is going to class them as employees who are using an arrangement of contrived self-employment to evade taxes.

I'm an accountant and have been the 'payer' to small businesses when I have worked for both cashed up companies and ones that are totally broke.

Some good advice in the posts - I would concentrate on:

1. invoice IMMEDIATELY (if not sooner). Invoice for materials up front even if you have not done the work yet.
2. use A4 paper rather than the smallish duplicate invoice books from the newsagent - less likely to be lost in a pile of papers
3. use coloured paper! Same reason as 2 (will stand out). Surprisingly effective.
4. prompt payment discounts often work - 10% is too much though (10% off a monthly invoice is equivalent to more than 120% per annum) unless you have added 10% to your price. 2.5% is more normal.
5. politely explain that you can't do the next work they ask you for because you haven't been paid for the last lot
6. reminder letter after 2 weeks, collection letter after 4 weeks. Either have your own collection business name (different phone no.) or many collection agencies will provide you with a pad to use at nominal cost
7. Make it easy to pay - credit card, EFT. Perhaps PayPal depending on customer base.
8. In difficult situations, request a cheque to be available at the end of the job (but give plenty of notice of this).
9. Phone accounts dept twice a week to follow up late payment. Squeaky hinges get the oil.

Some organisations cannot process payments quickly because of authorisation processes, or only doing payment runs on certain days or intervals. Find out when the payment runs take place and ask for your payment to be in the next run if the one after would make it late.

Good luck

Chris