I’ve spent quite a lot of time in my professional career thinking about why companies don’t pay invoices on time. As a finance director and as a freelancer, I have experience of both sides of the fence.
I’ve written this post to help freelancers understand the blocks that they might face and how to overcome them.
Your invoice has not been received in the right place
In my experience, the most common reason why companies don’t pay invoices on time is simple; the accounts team don’t have the invoice.
Certainly from running Accounts Payable teams, the standard first response to a supplier query was to ask them to send the invoice directly. In most cases that was the reason for lack of payment.
If you’re sending an invoice to your operational contact, it’s always worth double checking if it should actually go to an accounts address.
Your invoice has not been approved
Many large companies operate a purchase-to-pay system, which means that if you don’t have a valid purchase order number on your invoice, they won’t pay you. Frustratingly, you might only find out about this when you submit your invoice. (See my post “Why purchase-order systems suck” for more on this.)
Another issue to watch out for is supplier verification procedures. These usually exist because of good intentions – for example, understanding supply chains or making sure that companies are not accidentally money laundering. However, these can sometimes be really onerous – having to provide ID or documentation or fill in a lengthy form.
The worst is when this happens in conjunction with the previous issue. That is, the freelancer does some work for someone in a company without a purchase order. Then they find that all of the supplier verification procedures have to happen before the PO can even be raised.
Internal processes are the company’s problem, not yours and it’s important to remember this when chasing for payment. It is not your fault if your contact in the company did not follow the correct procedures. If the company is acting in good faith they should be able to help you through the processes quickly (or have a work around).
If you suspect they are not acting in good faith, then it’s time to start reminding them about due dates and statutory interest.
Your invoice is in dispute
This is trickier to deal with. You have to be careful to identify if it is a genuine dispute or a delaying tactic.
If it’s a genuine dispute then it should be clear to both parties what is being disputed. And both parties will have an idea of what they expect to happen to resolve it. (They may not agree on what that action is, hence the dispute, but both parties should understand what is being asked of them.)
If you’re in this situation it’s important to get this established in writing as soon as possible, so that it is clear what the non-payment relates to. (You may be able to get payment for some of the work if not all of it this way.)
A lack of staff / signatories or missing the main pay run (smaller companies)
I find that smaller companies tend to be better at prompt payments. However lack of staff can be a problem for very small charities or companies, so they will tend to only do one or two pay runs a month. An added complication can be a lack of bank signatory availability.
In this circumstance the company or charity almost certainly wants to pay you on time, so it’s just a case of agreeing a payment date. To avoid this causing you problems, if you’re dealing with a small company it’s worth asking up front when their payment runs are.
Some companies are trying to maximise cashflow at your expense
You may come across the situation where a company’s standard terms are 60 days or more. These people are just trying to maximise their cashflow at your expense.
There isn’t really a justification for it, but it was certainly standard training when I was starting out that you should maximise the time taken to pay suppliers while minimising the time taken to receive customer payments.
The logical conclusion of this nonsense is that the bigger companies will dictate 60 days or more payment terms.
However, there are a couple of things to bear in mind:
- if you haven’t agreed contractual terms, there’s nothing that says that theirs takes priority over yours. You can try politely insisting, especially if you have a clear audit trail showing that you have made your terms clear at the point of accepting the work.
- Government guidance points out that if no contractual terms have been agreed then 30 days is considered the default.
- All of these companies will have workarounds, because at some point they have to deal with a customer who is bigger / more of a bully than them. So don’t accept “can’t” as an excuse. However, if it’s just a case that they “won’t”, and you have agreed to these terms, there’s not much you can do.
Ultimately you have to balance the risks of working with these sorts of companies versus the rewards. I do now always try to have a conversation up front about payment terms before agreeing to do any work.
Paying invoices on time is not usually the primary target
Even when accounts teams are not deliberately delaying invoices, it’s worth noting that they have other competing priorities. At month end, the priority is about getting the invoices on the system to allow for accurate management reports. This doesn’t necessarily mean they’ll pay them at that point.
None of these should be excuses for not paying you within your agreed payment terms, but I just mention these as genuine reasons why your payment might get overlooked or deprioritised.
Tips for freelancers to get paid quicker
- Set the shortest terms you can. If possible, ask for a deposit and/or milestone payments.
- Make sure these terms are clear when you start the work. Eg “My payment terms are 7 days after completion. Please let me know how I need to invoice to get paid promptly”.
- Repeat these terms on the invoice, together with a note saying that statutory interest and late payment charges will apply in the event of late payment.
- Make sure bank details and the correct bank account name are clear on the invoice. It’s surprising how often these are missing.
- When working with a new person or organisation, check that you fully understand the invoicing requirements before starting work. Will you need a purchase order to invoice? Who will be receipting? Where do you have to send invoices? Do new suppliers have to undergo verification checks before payment? (If so you want to get these done before starting work ideally). If it’s a big company, be wary if the person you’re working for doesn’t know the answers to these questions.
- Chase as soon as the terms are up; if your emails are not being acknowledged, phone. I have also contacted via social media messaging. It can feel rude and intrusive but you need to get over that. You have done the work and you are owed the money.
Tips for finance teams on paying invoices more quickly
- Spend some time critically reviewing your processes from the perspective of a new freelancer invoicing your company for the first time. What might go wrong and prevent you paying them on time?
- Have a generic email address (Like accounts@yourcompany) so that invoices are more likely to be received and registered promptly.
- Consider having a section on your website for how to invoice (i.e is a purchase order needed, what is the company’s registered address, what are the contact details for the accounts team). I appreciate this might make you more open to spam and phishing attempts though.
- Measure payment performance; this can help identify bottlenecks or persistent problems in the system.