How to deal with late payments as a tradesman
With over a third of small businesses dealing with late payments, unpaid invoices are an all too common occurrence. Late payments can be a huge problem for tradespeople, causing bottlenecks in cash flow, difficulties paying bills, and sometimes business collapse.
Unfortunately, many tradespeople are missing out on payments they're legitimately owed. Our own research revealed over half (57 per cent) of late payment claims have been unsuccessful or unresolved. The largest single invoice tradespeople have written off averages close to £5000.
We explore some of the ways tradespeople are impacted by late payments and the steps you can put in place to deal with them effectively.
How do late payments affect a business?
Late payments can negatively affect your cash flow. This can cause huge problems for small businesses, seeing as they typically work with tight budgets and rely on receiving payments on time to pay bills and operation expenses. Unfortunately, when clients pay late, this can put your business in financial danger.
You may also struggle to pay your suppliers on time, which could impact your relationship with them or in some cases, even lose future work opportunities.
How many tradespeople are affected by late payments?
At the time of our survey, tradespeople (who either own their own business or are self-employed) were owed an average of £6,984 worth of late payments. More than half reported being owed upwards of £1000 and more than half of those are owed more than £5000. On average, tradespeople are chasing six late payments.
In the past, our research revealed tradespeople have either lost out or given up on chasing an average of £4,754 worth of payments, with nearly a quarter (24 per cent) losing out on over £2,500.
According to our research, almost a quarter (23 per cent) of tradespeople worry about not being able to cover their family or personal expenses, with one-in-five (21 per cent) concerned about late payments impacting their mental health. One fifth (20 per cent) worry about the time spent chasing payments, which in-turn prevents them from doing their primary job.
Late payments can also threaten the survival of a business. Our research revealed almost one fifth (18 per cent) of tradespeople say that late payments could lead to them filing for bankruptcy.
What to do if your client is late paying an invoice
Debt recovery can seem daunting, but it's a good idea to have a plan of action, should you find yourself in that situation.
Chase payments as soon as they become overdue
Non-payments can often be dealt with by a simple phone call or a letter. If a payment is overdue, follow up as soon as possible, which can serve as a reminder. Escalating your query too quickly should be handled with caution, as this could backfire on your client relationships.
Escalate your request for payment
If a client still refuses to pay or your calls are being ignored, you may need to escalate your request for payment through a small claims court. According to our research, a worrying 78 per cent of tradespeople have applied to make a legal claim for outstanding payments. As a small business owner, it's worth knowing your options if you're owed money.
Monitor unpaid invoices and consider alternatives
Monitoring clients who regularly miss invoice deadlines is crucial for managing your cash flow. If you have clients that consistently deliver late payments, you may need to consider alternative business opportunities before it becomes a serious problem.
How to avoid unpaid invoices
While late payments can often feel like something that's beyond your control, there are certain steps you can take to help avoid them in the first place.
Invoice promptly
Send your invoices as soon as work is completed and make sure they're accurate. Invoicing errors can hold up payments, so ensure they include the right information.
Make it easy to pay you
Tradespeople are taking various measures to avoid late payments. Our research revealed that over a quarter (27 per cent) refuse to start work until they receive upfront payment. A quarter (25 per cent) take payments immediately with a card reader or mobile payment and a similar amount (24 per cent) charge a 'late payment fee'.
Foster good relationships with your clients
Building good client relationships often means it's harder for them to let you down with late payments. Regular communication can result in your payments being prioritised.
Take control of your business
Dealing with late payments can be stressful as a small business owner, but there are ways you can take control of your finances.
Maintain good cash flow
Keeping track of finances with an effective cash flow plan is common in many businesses. There are lots of ways you can monitor the money flowing in and out of your business, in terms of your income and expenditure. QuickBooks, for example, is an accounting software package that is geared mainly towards small and medium-sized businesses.
Get covered with tradesperson insurance
In some cases, late payments can be so large or overdue that you may need to pursue legal action. However, our research suggests almost one fifth (19 per cent) of tradespeople worry about the cost.
Direct Line business insurance policies come with Legal Essentials, a service that provides tradespeople with unlimited access to a team of DAS legal experts for confidential legal advice and access to a library of legal templates, tools, and guides to help them run their business, including guidance on how to pursue late payments.
The legal helpline and document services are provided by DAS Legal Expenses Insurance Limited. For niche legal advice and some jurisdictions, the 24/7 helpline will refer you to specialist advisers, available Mon-Fri, 9am-5pm, excluding bank holidays. The service also provides policyholders with access to a Stress Counselling Helpline, which is available 24 hours a day, seven days a week, all year round.
Our research involved conducting a survey of 2000 UK adults. Figures in this article are focused on 161 tradespeople from the survey who either own a business or are self-employed. Conducted 10th-14th February 2023.