Do you want to get paid on time
Sorting out collecting in payments due to your business really is critical as you will spend far too much time chasing outstanding payments (as you may already be finding) and your cash flow may be so adversely affected your business is put in jeopardy.
To make sure you get paid on time, follow these tips below:
Decide Your Payment Terms
Decide when you want to be paid and make this clear to your client. Don’t let the client dictate to you.
Depending on your business you may decide upon 30 days payment, 14 days, immediate payment or payment up front before any work is undertaken.
And you don’t have to stick to just one payment term for all your clients. You can amend them dependent upon who you are working with.
I have used a variety of payment terms in the past (and still do).
For my freelance work with large corporations that I have a good working relationship with, I work on 14 days payment due after the work is delivered. With business advice and consultations with individuals, I work on payment up front before any meetings take place. When I run my local workshop, I allow payment on the day.
For larger projects, you may consider splitting the payments and I do this when I release one of my more expensive courses. I ask for a percentage up front followed by 3, 6 or 12 monthly payments, depending on the type of course I am delivering and its length.
It’s your business, you know your cashflow (or you should!) and you decided what works for you.
Have a Contract
Once you’ve decided what you will be providing and when and how you want payment, you need to get this all written up in a formal contract that will be agreed and signed by your client.
Clearly state the payment details, what you will deliver in return for payment and what happens if a payment is missed or late.
Personally, I add a late payment charge into my terms and conditions and make it clear this will be automatically added to the client account if payment is not received within 48 hours of the due date. I also add that all work will cease until full payments have been received. I put in an explanation that this charge is to cover administrative costs in chasing payments and for not adhering to contracted terms and conditions.
Once you have your contract written up, make sure all details are included such as your name, business name, contact details and client details. Sign it, date it, send two copies to your client and ask them to do the same before returning one to you and keeping one for their own records.
When I first did this many moons ago, I was afraid this may put off potential clients. I know realise this is one of the most sensible things I have done as if anyone does not agree with these terms, I don’t want to do business with them. Paying clients are what I want, not freeloaders.
A contract also helps should there ever be any query about a payment in the future as you can both refer back to the agreements that has been signed by both parties (yes, you must get them to sign before you start any work!)
One of the easiest ways to administer collecting payments is to use accountancy software. I personally use FreeAgent where I have all my payment terms laid out and once a contract is agreed, I create recurring invoices to be sent on due dates. It is also possible to send reminders prior to the invoice due date to remind clients to pay and to automate unpaid invoice reminders.
On each of these reminders, I highlight the fact that a late payment will be automatically added should the payment not be received. This relieves me of having to send individual emails to clients and the yucky feeling that can sometimes be felt when chasing payments. It really is a huge time saver.
After having a few late payments and introducing this system, I have only ever had one defaulter.
Below are a number of different financial software solutions for you to have a look at. There will many more out there but this is a small selection to consider. Yes, there is a cost to these but if it saves you stress and gets your payments in, it will be well worth it.
Package prices start at £19.99 + vat PCM. I heard so many good things about this that I just had to to switch to it myself and now don’t know how I ran my business without it. I just love it. If you want to use it you can get a 10% discount by using this link
A free option for just one client. Package prices start at $19.99 PCM
Pricing starts from £5 + vat PCM for sole traders. Has add-on features such as CRM.
Pricing starts from £9 PCM. A simple calculator to see which package is best for your business.
Pricing starts at £9 PCM for up to 5 invoices. Lots of add-on features
Use the tips above and save yourself time and stress of getting those much-needed payments in and make sure you get paid on time
Do you have any tips of your own on how to get paid on time? Share them in the comments box below
I have been catching up with the latest episodes of Dragon’s Den. Whilst I appreciate the show is heavily edited, I am still amazed at the number of people who enter the Den without a clear understanding of their figures.
So many have no idea of the difference between turnover and profit. The episode I have just finished showed a woman who was so proud of her £20,000 turnover but could not understand why the dragons were aghast when she said she had a negative figure for her gross profit. She was questioned about her understanding of what gross profit was and she obviously did not have a clue.
Therefore, let’s clear up the key meaning of turnover, gross profit and net profit in case you are unsure. And if after reading this you still don’t understand, please don’t bury your head and feel scared to ask for fear of looking stupid. These figures are imperative to your business success so seek advice and explanation from your accountant.
Turnover: This is simply the total amount of your sales income over a specified amount of time. VAT is excluded from this figure if your business is VAT registered.
Turnover = income received from sales
Gross profit: This is the money that is left from your turnover once you have deducted the direct cost of making your product or providing your service (such as raw materials) but not the general indirect running costs of the business (such as insurance, salaries etc).
Gross profit = turnover – direct costs
Net profit: This is the money that is left once you deduct the indirect running costs of your business such as marketing, insurance, salaries etc from your gross profit.
Net profit = gross profit – indirect running costs
A simplified example:
Mary makes luxury cushions. She sells her cushions at £50 each. To make each cushion she needs to buy £7 worth of material, cotton, stuffing etc. The running costs of her business for insurance, telephone, personal drawing, marketing etc are £1500 per month.
Over the last 12 months Mary sold 500 cushions.
Her turnover was £25,000 (500 x £50)
The direct cost of marking the cushions was £3,500 (500 x £7)
Her gross profit was £21,500 (£25,000 minus £3,500)
Her indirect costs were £18,000 (12 months x £1500)
Her net profit was £3,500 (£19,000 minus £18,000)
That’s it in a nutshell. If you need any more help, pop on over to The Small Business Kit and drop me a line.
Do you take financial responsibility for your business or do you keep getting tempted by bright shiny objects?
One of the things you need to do when running a small business is to keep a close track on your spending and take financial responsibility for every penny spent.
Too often we get sucked into impulse buys and then have a ton of things we don’t really need or use. How many highlighters, shiny notepads, diaries, planners and magazines does one girl need? This all then adds to the clutter on desks and bookcases that in turn takes time to sort through and get rid of. And of top of this, how many courses have you signed up to that you have never completed? I have four outstanding at the time of writing. Shameful I know!
If this resonates with you, go out and purchase yourself a small notebook (or use one of the many shiny, colourful ones you have stashed away. At the top of each page, list how much money you have in your monthly budget to spend on non-essential items for the month and then every time you make a purchase, deduct it from the amount available to try and help you keep on track.
If you aren’t still a feather quill and ledger type of person, there are numerous mobile apps out there that can help you keep a track of your daily spend and the majority of them are for free. You can also use just a simple spreadsheet on your phone. A couple of apps that I use are MyMoney and I have also just downloaded ShopSavvy Barcode Scanner which lets you scan a barcode of a product and then lists where you can buy it at the best price.
Since I have put this into practice, I have already stopped and thought twice about making a couple of purchases and not gone ahead with them. By setting myself a limit, I know that by making those ‘small’ purchases now it will reduce my overall spend and I may see something else that I prefer later in the month.
This is all such simple and basic stuff but what so many of us forget to do by letting our financial responsibility slip. We then find we have overspent and end up feeling stressed when we check the bank balance at the end of the month.
And finally, the best of thing of all that I have done is gone and bought myself (yes, I have entered it in my notebook!) a good old fashioned piggy bank. I love him and have promised to feed him daily with at least one gold coin out of my personal money so that at the end of the year I will have a minimum of £365 to reward myself for taking financial responsibility for my business. Happy times!
An introduction to tax, national insurance and VAT
The amount of tax you need to budget for and then pay, depends on your business structure.
The two most common business structures for small business are:
* Self Employment (also known as Sole trader)
* Limited Company
Tax Payable for Self Employment (& When)
Class 2 National Insurance
For the 2015/16 tax year (6 April 2014 to 5 April 2015) you pay £145.60
Unless you have been approved for a small earnings exception certificate (profits under £5,965) then you will pay Class 2 contributions even if you make a loss.
Class 2 National Insurance is collected with Class 4 national insurance and income tax from 2016 and has transitioned to an annual payment structure.
Class 4 National Insurance
Once your profits have exceed £8,060, you begin to pay Class 4 National Insurance at 9% on a sliding scale.
For example – if you have £10,000 profit for the tax year, you would pay Class 4 National Insurance at 9% on £1,940 (£174.60) which is payable in line with self assessment deadlines 31 January after the end of the tax year).
The 2015/16 Income Tax Allowance is £10,600 therefore you do not pay income tax until your profits reach this level. However, if you have employment income at any point in the year, this is also included in your £10,600 allowance.
If your business is registered as a limited company, it is liable to pay corporation tax on any profits the company makes. The directors of the company pay income tax on their salaries, as do any other employees.
The Corporation Tax rate may change each year on April 1st. The current rate payable is 20% on profits of £300,000 and under. Above £300,000 the rate is 21%.
You do not have to register for VAT (Value Added Tax) until your turnover is £82,000. However, you can register for it voluntarily if you wish. You will then need to charge VAT on all your income and submit quarterly VAT returns (unless you elect to submit an annual return if you meet the criteria).
If you sell BTE products (Broadcasting, Telephone and E-Services) to other EU countries, you may need to pay the applicable VAT for those countries which is done via registration for MOSS (Mini One Stop System).
If you are looking at going down the limited company or voluntary registration for VAT, I strongly advise you have a chat to an accountant first.
This guide to small business tax and VAT was written in conjunction with
Kylie Fieldhouse ACA CA (AUS)