Handling freelance payments can be complicated but getting them paid more quickly will help your business attract the best people.
The web is full of articles aimed at freelancers offering ways in which they can ensure they get paid on time. However, there are relatively few aimed at businesses explaining why they should work hard to make sure payments happen promptly.
That’s a shame because from a freelancer’s perspective, a company which pays its bills on time is like gold dust. As a result, those companies tend to get prioritised and a special treatment over those which may take their time. In other ways, it pays to be a good client.
Here, then, is a review of why it pays to pay on time and how you should go about it.
Not every business has always been keen to pay quickly. Indeed, some accountants specifically advise their businesses to delay payment if possible, in order to ease short term issues. Cashflow is always an issue for business and there is always a temptation to punt expenses down the line.
Some business owners have been known to adopt an approach of never paying bills until they absolutely have to. Their hope is that invoices might get lost in the system or that freelancers might simply give up. In the meantime, they can manage their cashflow by prioritising those bills which have to be paid immediately.
The cost of late payment
However, this approach is about as short sighted as it is possible to get. From a freelancer’s perspective, late payment is a constant problem. In survey after survey, they cite late and delayed payments as being their biggest cause of frustration.
As a business you should understand how that feels yourself. Late payments are also a major concern for SMEs and is one of the most common causes of business failure. In the UK alone it is estimated that businesses have £26bn tied up in late payments. Prompt payment could prevent more than 50,000 business failures each year, with an impact on the economy of £2.5bn. Just as it’s a problem for you, so it’s an even bigger problem for freelancers. This is often their only source of income, and if you’re not paying it, they can’t meet their own bills.
Why you should pay on time
Paying on time, then, is a moral imperative. It’s the right thing to do as a business and will avoid considerable hardship for the people you work with.
If that doesn’t sway you, let’s turn our attention to more selfish and practical reasons why you want to pay more quickly.
- It will make freelancers happier: Businesses are switching on to the financial value of keeping employees happy. If they are content and aren’t stressed about money, they will be more productive.
- Improving quality: Happier freelancers will also be likely to produce better quality of work. Think of it from their point of view. If you’re working for someone with a history of paying quickly, you’re likely to prioritise their jobs over someone else.
- Reputational impact: Social media gives everyone a voice and if your freelancers become unhappy about the way they have been treated, they may voice their displeasure online. Often this will only take the form of a few social media posts, but if people see information in the public domain suggesting you do not pay your bills it will be more likely to affect how you’re seen by other stakeholders. Again, from their point of view, they need to work with companies they can trust. If they see messages from freelancers complaining about late payment, they may ask if they can trust you to behave any better with them.
- Ongoing work: In many cases the chances are you’ll have more work for the freelancer – if not now then probably somewhere down the line. If that’s the case, then it pays to make sure they are happy with their payment terms. Recruiting each new freelancer will always be a risk. You’ll never know if they will be a good fit for your company for sure, until they deliver the final work. If you do find someone good, you want to have them available to come back time and time again. However, they are hardly likely to do that if they’ve spent weeks trying to get late payments out of you.
- Penalties: Governments across Europe are looking to encourage faster payments. They are issuing new rules on maximum payment terms and giving freelancers the power to issue penalties for those companies which break them. To avoid these costs and being dragged through the small claims courts, many companies need to focus on their payment structures.
How to pay promptly
There are many reasons why you might struggle to pay freelancers on time. In most cases, invoices can get lost in the system. Without a clear chain of communication between one department and accounts, invoices can be easily lost in the system. The only time things actually happen is when the freelancer issues a reminder and you start chasing things up.
Larger businesses can often have complex payment structures, with only one or two payment runs each month. In such a rigid system, it can be difficult to ensure freelancers are paid promptly. If an invoice misses one run for any reason, they could be waiting another few weeks before they get paid again. That’s hardly likely to go down well at the other end of the line.
The good news is that there are things businesses can do to speed things along a little. Digital technology is creating faster and more flexible payment systems which means contractors can be paid more quickly. This helps you conform to various payment terms from different freelancers.
Having people work with a company credit or debit card can sometimes be easier. If the person responsible for commissioning work can just pay by card, it can open the door to instant payments. This can make things simpler from an accounting perspective and will also keep freelancers happier.
Prompt payment, therefore, is good not only for the freelancer, but also you as a business. It helps you attract the top people and avoids debts mounting up. Having clear financial instruments in place to improve the flow of payments will benefit everyone concerned.
