Can I send an invoice only after payment is made?

MyMissC3

Hi all!!

I recently registered as self-employed.

This is not the first time I work as freelancer/sole trader, but many years ago I had big (veeery big!!) troubles with invoices that were never paid (or paid years later!! ) so that I had to pay tax on that invoices without having the money in first place.

So I was wondering if it is allowed to send the invoice to your clients only after the payment is made and confirmed, and how long do I have to send the invoice from the payment day.

Thank you for any help!!

Horace

I send the invoice before they make payment so they know what to pay and what my payment terms are.

Sometimes at my events people pay me in cash on the day which I then bank and then I send them a receipt.

You need to have strict payment terms really. Depending on what I have done then I either say that payment is due immediately or give people 14 days. They are also made aware of any interest I may charge on the overdue debt. If the debt remains outstanding for 2 months or more then I make arrangements to deal with a company who will recoup that money on my behalf.

You need to tighten up your payment terms really and send your invoices before payment has been received.

MyMissC3

Thank you for your answer.

My worry is that you can have all terms you want, but if your client does not pay and this is because they actually do not have the money, there is really nothing you can do.

I just would like to avoid this problem.

In some other countries you can send a summary and after payment you have up to 60 days to send the invoice to the client.

The problem of knowing what they are paying for is not a problem as you can send them a summary or whatever stating the amount due. So I wanted to understand if "by law" you have to send an invoice before the payment is made or you can wait until the payment has actually been made.

It is like when you go to a restaurant and they give you a bill that is not the final receipt, then you receive the final receipt only after paying.

Horace wrote: »

I send the invoice before they make payment so they know what to pay and what my payment terms are.

Sometimes at my events people pay me in cash on the day which I then bank and then I send them a receipt.

You need to have strict payment terms really. Depending on what I have done then I either say that payment is due immediately or give people 14 days. They are also made aware of any interest I may charge on the overdue debt. If the debt remains outstanding for 2 months or more then I make arrangements to deal with a company who will recoup that money on my behalf.

You need to tighten up your payment terms really and send your invoices before payment has been received.

InsideInsurance

An invoice is a demand for payment, a receipt is a conformation of payment. It is therefore a little odd to send a demand for payment after the payment has already been made.

Sending an invoice or not has no impact on your clients payment or not, if they're going to pay they will, if they aren't they wont, paper wont change that.

If you are not VAT registered then as far as I am aware you have no obligation to produce invoices unless its contractual. If you are VAT registered you legally must provide invoices with correct information on it either within 30 days of supply or by the date of payment, which ever is sooner. http://www.hmrc.gov.uk/vat/managing/charging/vat-invoices.htm

Pennywise

Also remember that it's not invoice dates which are relevant for accounts/tax. It's the date on which the work is done. If you do the work in the 11/12 tax year, you must show the value as income/profit in your accounts and tax return as (unbilled work in progress or accrued debtors), whether or not you've invoiced for it, and whether or not it's been paid for. Invoice dates are a bit of a red herring as they don't actually matter.

paddyrg

Depending on the style of work, you could always demand 50% (say) upfront (eg if you need to hire kit, etc), then the other 50% on completion. I normally pay suppliers on invoice - ie the invoice arrives, then we pay it. That may be after the work is completed, or before.

MyMissC3

Thank you all, just another question then.

So say I do the job this month (tax year 2011-2012) and they pay me in December 2012 (tax year 2011-2013).

Are you really saying that I have to pay tax on it in the tax year 11-12 even if I did not receive any payment?!!

So it does not matter if I invoice the client in December 2012, day of payment, I still have to pay tax on that job in this tax year and not the year where I actually get the money? This really seems a little bit stupid and quite odd to me!! O.O

I really hope I misunderstood!!!!!!!!!!!!!!!!!

WestonDave

Yes you would have to pay tax on it in 2011-12. You have earned the money in that period and in accounting terms that is when the profit arises. The fact that you have an unpaid debt is not relevant for tax, although if you know it won't ever be paid you can then make a bad debt charge against the profit for the unpaid amount. It isn't as daft as it sounds - you will be presumably claiming against tax for costs involved in doing the work - materials, power etc, so this is a means of matching costs and revenues.

martindow

With VAT you can use cash accounting where the VAT becomes due only when the invoice is paid.

http://www.hmrc.gov.uk/vat/start/schemes/cash.htm

Savvy_Sue

MyMissC3 wrote: »

Thank you all, just another question then.

So say I do the job this month (tax year 2011-2012) and they pay me in December 2012 (tax year 2011-2013).

But why are you doing that? How sure are you that a company will still be trading over 12 months after you've done some work for them? How do you know they won't query the quality of the work / whether it was done / whether you were authorised to do it?

To give another example, we've recently been sent an invoice for some work done the year before last. Our business manager is hugely unhappy about paying it: 'reasons' have been given for why the invoice wasn't submitted in a timely fashion, but none of them are OUR responsibility. If you want to be paid, you invoice; if the invoice isn't paid, you chase. If you don't invoice, you don't get paid, and once the annual accounts have been finalised it's not a trivial matter to pay a bill from 'last' year or the year before.

paulwf

OP since the recession started and companies went bust at the drop of a hat payment terms have tightened up a lot. Basically cash on receipt of goods is now extremely common, and quite often payment is asked for upfront before goods are supplied. I even had one contractor who wouldn't talk to me until he had a deposit in his bank account! Everyone is really twitchy about getting paid now and I've had companies pestering me for payment even if the invoice was less than a week old.

To cut a long story short what I'm trying to say is you probably won't offend your clients if you ask for payment in advance or on completion of the job, the world has changed and 60 days is now being phased out. Of course it will vary from one industry to another so check out the competition but my advice would be if at all possible ask for payment on completion. Unless you have very high profit margins even if you lose a couple of jobs it will still be worth not offering credit if you factor in the hassle of chasing up payments and the very real risk of not getting paid at all.