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How to set up your new business

Start ups: Getting paid

You'll need to jump through a few more hoops to get paid as a contractor. The experts at the UK200Group talk you through it:

Piggy bank with coins

Unlike permanent employment, you can't expect a salary to appear in your bank account at the end of each month. Getting paid for work completed as a limited company contractor can at times be more challenging and can mean undertaking several tasks.

  • Completing timesheets: These are provided by your agency, or your client if working direct, and are used to confirm the hours or days that you have worked during the week or month.
  • Issuing invoices: Remember you are a business so you need to invoice your customer – the agency or client – for the services your business delivered. This is explained in detail on page 16 of the UK200Group guide (see link below).
  • Collecting payments: Your invoice will typically require payment within 30 days, which is standard for business-to- business relationships. Many agencies pay much faster. However, not all clients and agencies pay within 30 days. Some have 60 or 90 days terms and others are simply poor payers you need to chase.
  • Managing late payers: Late paying clients are an occupational hazard for contractors and other small businesses. If you do encounter persistent late or non- payers, there are several options, including using a credit collection agency or filing a claim with Money Claim Online.

How to set up a business bank account

Your company is a separate trading entity to you, and so you will need a business bank account to receive payment. There are several business banking solutions online.

Many of these are tailored for one-person contractor limited companies and can process your application faster and without the unnecessarily rigorous vetting practices that many high street banks undertake.

These are typically cheap and relatively quick to set up and readily accessible online or via your mobile.

How to prepare an invoice

Once you have a timesheet that has been signed by the client, you need to prepare an invoice. Unless you are contracting directly with a client, the likelihood is that you will invoice your agency for the work completed, who will in turn bill the client with its margin on top. Otherwise, you will invoice the client direct.

What to include in your invoice

Your invoice needs to follow a very specific format. Failure to do so can sometimes result in the invoice going unpaid. In fact, you may find some clients use minor errors on an invoice as an excuse not to pay you at all – don't give them that excuse. The details that it needs to contain include:

  • Your company name, address and contact details – include your company number and registered company address
  • Invoice date and due date for payment
  • The invoice number
  • Hours/days being billed for and hourly/daily rate
  • Expenses recharged to the client if applicable
  • The total value that the above amounts to
  • The amount of VAT charged and company VAT number
  • Total invoice value
  • Terms of payment

What else do I need to know?

As you are in a business-to-business relationship, you will typically request that payment is made within 30 days. However, agencies tend to pay contractors within a week of billing the client themselves, so you may not have to wait that long for payment.

Most agencies and clients require that each invoice is accompanied by the relevant timesheets, but be sure to retain a copy of each timesheet before sending them over.

You might issue an invoice electronically or in paper format, depending on the agency or client's preference. Invoice templates are easily accessible online, and the UK200Group are always on hand to help if you need any further guidance. In fact, many accountants now provide solutions with invoicing capabilities. Ask the UK200Group for more information.

This extract was taken from the practical guide to 'Running a Limited Company'. It was reproduced with permission from UK200Group and written by experts in the UK200Freelancers & Contractors Group. Find out more about the UK200Group here:

Click here to download your copy of 'Running a Limited Company'.

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