Late or bad payers can have a serious impact on a business’ cashflow, affecting its ability
to cover staff wages or pay for materials in advance. In the second of a two-part feature
from Sprintlaw and Hnry, we provide a guide for landscapers who might find themselves
in this situation
If you’re a self-employed tradie in New Zealand, trying to make the most of your business, we
know one of the hardest parts is chasing up clients for unpaid invoices. After all, you put a lot of
work into your services, and you are entitled to be fairly compensated for it.
There are a number of things you can do to avoid these sorts of problems. Let’s pick up where we left off last issue, where we covered customer contracts, payment plans and deposits.
Impose late fees
Sometimes, it might make more sense to penalise clients if they don’t fulfil their commitment in the agreed timeframe. If payments are late, you can charge clients a certain fee as a ‘penalty.’
For example, it might look something like this:
1 week = $25 fee
2 weeks = $50 fee
3 weeks = $75 fee
1 month = $200 fee and a Letter of Demand
These kinds of fees can be set at your discretion. However, you should include them in your contracts and ensure that your client is aware of how and when these penalties will be incurred.
It’s worth keeping in mind that while this may increase the likelihood of a timely payment, it can also lower the chance of a client honouring the payment at all should those late fees come into effect.
If you’re worried about the optics of charging penalties, another approach is to mark up your services and then offer an early payment discount.
Maintain good communication
One of the most important takeaways here is that good and consistent communication is key to avoiding overdue payments.
As long as you send friendly (and consistent) reminders to clients, you should receive your invoice payments on time far more often than not. Sometimes, clients may have just forgotten to pay and a simple nudge should do the trick.
Use an invoicing system
Even if you are managing your invoices quite well, it can get overwhelming to stay on top of all the pending payments and simultaneous client relationships. One of the most convenient ways to manage your financial admin is through an online invoicing system.
A platform like Hnry can really help you streamline your invoicing process. With Hnry, you can:
Create professional invoices in seconds.
Add materials and cost of goods sold to a tax free portion of your invoice, so you can stay on top your cash flow and not overpay the IRD.
Easily keep track of your outstanding invoices, so you know which ones have been paid and which haven’t.
Opt in to send automated invoice reminders, so you can get paid on time while maintaining good client relationships.
If you’re interested in learning more about what Hnry can do for you, check out our resources for tradies.
I've done everything suggested, but still haven't been paid
Sometimes, even after you’ve taken every precaution you may still not have been paid. In this case, you might be wondering whether you should take the issue to the Disputes Tribunal. In New Zealand, this is an informal, low-cost forum for resolving small claims.
How much you are owed is probably the biggest factor in helping you decide whether or not you should take it to the tribunal. For example, if you’re owed a small amount, it may not be worth making a claim, as the filing fee alone can set you back a bit.
You might also find yourself spending a lot of time and energy to file, prepare documents and gather evidence, with a reasonable chance that you may also have to represent yourself. You may consider that your time is better spent working on your next project.
Ultimately, if you do choose to make a small claim, the contracts you have in place, emails or letters you’ve sent, payment plans and invoices would all make fantastic evidence to help you prove your case.
If you need help sorting out the legal side of things as a sole trader or tradie, Sprintlaw is always ready to help you out. We offer a whole range of services to help you start and grow your business.
You can contact our team at 0800 002 184 or team@ sprintlaw.co.nz for a free, no-obligations chat.
Hnry automatically pays and files taxes, provides a service for admin management, and becomes your accountant. Head to Hnry.co.nz to get started!
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