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:
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: https://www.uk200group.co.uk/
It's worth taking advice before you start work to ensure you set up and maintain your accounting records, including expense receipts, in the right way. Set up costs can also be tax deductible under certain circumstances. The experts from the UK200Group explain more:
As a contractor, you'll need to budget for tax, insurance, professional fees, pension and for periods where you aren't earning such as holidays and sickness.
Here's your guide to budgeting for your limited company, from the experts at the UK200Group: