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If you’re trading through a limited company, you’ll need to submit an invoice on a regular basis before you’ll be able to receive payment from an agency or client. Typically, this is done weekly or monthly.
Bad cash-flow management is the biggest cause of failure in the UK and therefore it is important that you manage your finances well if you want your business to have a good chance of success. Like all business owners, contractors can suffer financial difficulties if payments are not received on time, or fails to pay at all. Therefore, eliminating as many difficulties before they arise is half the battle.
To ensure that invoices are paid on time and correctly, an invoice should include specific detailed information in order for the client to pay.
What details do you need to include in your invoice?• You must include the word ‘invoice’ on the document.• Your company name and business address• Your company registered number, found on your certificate of registration from Companies House• Business contact details, i.e. telephone number, email, social media • Clients company name and business address - or recruitment agency if used• An invoice number that is unique to that payment request. If you are VAT registered, it must be sequential. • A reference number or purchase order number if supplied by the client, to help with swift payments• Date of issue• Clearly describe what services you are invoicing for• Breakdown of units; hourly / daily rates• If relating to services provided, include the time frame of services• If you are VAT registered, include your VAT registration number• The total amount charged, net and gross of VAT• The rate of VAT used (the standard rate is 20%)• Payment terms and how /where to pay
The typical layout of the above details would be:At the top of your invoice: your business details, plus client company details. Reference numbers and date.Mid-section: details of work carried out with breakdowns and descriptionsBottom section: payment terms, VAT number, your company trading name and registration number.
By including these standard details, you can eliminate a large of amount of errors before they happen. Detailed invoices, with all necessary information provides everything a client needs in order to pay swiftly, on time and correctly.
If you decide not to include payment terms on the invoice, the law states that a company has the standard 30 days to pay. However, many companies are quicker than this and will abide by your payment terms of 7 days, 15 days if specified.
Did you know that you are perfectly entitled to add interest to late payments? You should state this on your payment terms. The interest you can charge if another business is late paying for goods or a service is ‘statutory interest’ - this is 8% plus the Bank of England base rate for business to business transactions. You cannot claim statutory interest if there’s a different rate of interest already stated in a contract.
For example:If your business were owed £1,000 and the Bank of England base rate were 0.5%:• the annual statutory interest on this would be £85 (1,000 x 0.085 = £85)• divide £85 by 365 to get the daily interest: 23p a day (85 / 365 = 0.23)• after 50 days this would be £11.50 (50 x 0.23 = 11.50)Send a new invoice if you decide to add interest to the money you’re owed.It’s also a good idea to ask for a contact name for the accounts department when you start with a new client, along with their telephone number so that you have a way of contacting if there are any issues with payment.
Contracting through a limited company is a straightforward process and we are happy to help with managing the process. Here at 2020 Accountancy, we can raise client invoices for you, so there’s no need to worry about getting it right, you can have peace of mind that your finances are in good hands.Get in touch to find out more, call 0333 222 5676 today.