Sole trader insurance against clients going bust?

Thecreative

Hi all, I'm self employed/sole trader, basically I work freelance for 12-15 different companies as and when they have work, I visit sites and do reports for them.

I try not to let any of the companies run up a bill of over £3500 however its not always easy to turn work away especially if things are quiet.

Recently a few of the companies have had a difficulties & I cant see it getting any easier for anyone, question is is there some form of insurance I can get that would cover me if 1 or more went into administration and obviously didn't pay? It would need to be cost effective with the sums I could potentially lose v monthly payment, this could possibly just be for 6 months or so until things level off & they either survive or fail.

There payment terms are mostly 60 days from month end, something I have no control over so again its not always easy to judge if any of them are struggling until the point they don't pay on time.

Any advice would be really appreciated.

martindow

I've no idea if insurance is possible but premiums would reflect the average likelihood of having to pay out plus an administration fee and a profit for them.  Your risk is spread as you work with several companies so I can't imagine it would make more sense than you effectively self insuring.  I think if if you had only one  freelance company, insurance could be more useful as one company defaulting can be catastrophic.

Can you structure your fees differently so that you invoice part of the cost as soon as you get work and then for the balance after you have done the task?  If so the first invoice could be settled by the time you do the work reducing your risk.

Of course, you could always grow your business to encompass a greater number of companies and dilute the risk!

DullGreyGuy

The insurance solution to this is "trade credit insurance"... be aware that its often a bit more complex and probably aimed at companies larger than yours. For example if you look at Allianz's offering, you have to use their credit checker tool on each of your customers and keep the debt within the limit they say. If your clients are all vSME businesses or private individuals then I dont know what levels they'll offer, it may be they wont offer any protection for some of your customers.

This forum loves overusing the term "self insure" but as has been said, you are already mitigating the risk in part by having a diverse portfolio of customers which may further diminish the value of buying insurance.

Thecreative

Thanks both, I try to spread the load however if only one or 2 companies have a need at the time I pretty much have to take the work,
no option to invoice differently, they all set the payment terms so like it or lump it unfortunately they will simply go elsewhere.

I know some of them are struggling albeit temporarily thats the concern.

macman

I suspect that the problem is that any premium will be based on the total turnover you want to cover, and so you'll be shelling out to cover the majority of clients who are not likely to default. 
Given that your exposure appears to be limited to hours worked  (you are not buying plant or material for these customers?), will it be worth the premiums involved? 
How much bad debt as a percentage of t/o are you currently incurring? Bear in mind that you can set any bad debt against your tax bill.

MalMonroe

Thecreative said:

Thanks both, I try to spread the load however if only one or 2 companies have a need at the time I pretty much have to take the work,
no option to invoice differently, they all set the payment terms so like it or lump it unfortunately they will simply go elsewhere.

I know some of them are struggling albeit temporarily that's the concern.

Hi, I'm also a freelancer, as is my daughter (different areas of work) and we both set our own terms of payment at the point of quoting for a job. This is what the government says about it -

"You can set your own payment terms, such as discounts for early payment and payment upfront.Unless you agree a payment date, the customer must pay you within 30 days of getting your invoice or the goods or service.

You can use a statutory demand to formally request payment of what you’re owed."

https://www.gov.uk/invoicing-and-taking-payment-from-customers/payment-obligations

Freelance UK's legal guide says - 

https://www.freelanceuk.com/money/freelancers-here’s-your-cut-out-and-keep-legal-guide-…payment-terms.shtml

and also, this - https://www.freelanceuk.com/legal/freelancers-legal-guide-statement-works.shtml

30 day terms are the most common in freelancing - and that's from the date of their receipt of the work carried out. 

There's some information about the different types of insurance you may need here -

https://www.moneyhelper.org.uk/en/work/self-employment/business-insurance-when-youre-self-employed

But first and foremost, you have to present as a professional person. You discuss the work with clients and then you issue contracts in which you, not them, state the terms of payment. There are obviously benefits in being flexible but waiting for two months before you are paid for work you've done is totally unacceptable. When you hand the work to them, or it's finished - that is when you also give them your professional invoice. 

Is there any way at all that you can seek out companies who aren't in financial troubles and difficulties? Is there a reason why most of your clients appear to be in such uncertain positions? Allowing them to build up outstanding payments of up to £3500 is crazy and no further work should be carried out for such companies. 

People have to pay for work they've had done and some companies do, unfortunately, think they can get away without paying for work that's been done. My daughter had to threaten one of her clients with court last year, as he was reluctant to pay up. There is a proper procedure to follow when chasing payments and the following link may be helpful -

https://www.axa.co.uk/business-insurance/business-guardian-angel/how-to-set-clear-payment-terms/

You say that 'some of them' (that's a worry anyway) are struggling but what about you?? Working for nothing. You must be struggling more than they are.

Please also, and I know this is very difficult when you're freelance - do have confidence in your own ability and in your own work. It is not acceptable for companies to treat any worker in the way you've been treated. If you let companies know that you are a professional person and you give them a verbal quote and then a written contract, they will appreciate that they have hired someone who knows what they are doing and that that person will have to be paid when the work's been done. 

I'd also suggest that you join an online group of freelancers so that you can bat ideas around with them. My daughter and I find this an invaluable resource. Being a freelancer can be a lonely place, especially when people are taking advantage. There are groups on Facebook and there are also others you can find online but do make sure they don't make you pay for joining. That's the last thing any of us need.

All the very best to you, I hope some of this is helpful. I'm in a similar position to you and won't let anyone mess me about, especially when it comes to payments. You have to look after yourself and these companies have to pay you.

DullGreyGuy

macman said:

I suspect that the problem is that any premium will be based on the total turnover you want to cover, and so you'll be shelling out to cover the majority of clients who are not likely to default. 
Given that your exposure appears to be limited to hours worked  (you are not buying plant or material for these customers?), will it be worth the premiums involved? 
How much bad debt as a percentage of t/o are you currently incurring? Bear in mind that you can set any bad debt against your tax bill.

Its a rather complex product compared to consumer insurance and consists of both a service (the credit checking of clients) and insurance with charges and VAT/IPT applied to each aspect.

In its most simple format you can insure your complete turnover (assuming clients are acceptable) and for example £200k turnover is £4,100 + taxes with Allianz. It however covers more than just insolvent clients, it covers late payers and some other complexities if dealing with international customers.

seatbeltnoob

business credit reports, about £15 a month for 10 reports a month (50 on your watchlist which alerts you if their situation changes). creditfocus.

If you have friends in the industry, you can share a credit reference account, split the cost and make it go further.

if their rating is too low, ask for payment up front.

you dont need to offer to work on credit. i never agreed to any work on credit in my field. get paid up front, dont worry about when you randomly receive money for work done 30-60 days after invoice.

just because it's the norm for their to get credit, dont accept it. for them, credit terms is good for their cash flow, if they're ordering 50k worth of stuff - a 30 day term will allow them to sell through most of the stuff they've bought and pay their creditor with proceed of sale.

Paying a freelancer upfront for £300-£400 worth of work shoud'nt be a problem.

I have bills to pay and can't work with that uncertainty.

Mistral001

I suspect that if there is insurance for such a thing it would be expensive.   You might think you are exposed, but in reality you are just exposed to the possibility of losing £3500.at the most.  I would leave insurance for paying for things which would really sink you, like if your house burned down.  If you are losing sleep over this then having a contingency fund for something like this might be a good idea.

PS.  I see what you mean about not being able to change credit from 60 days to something like 30 days with existing clients, but there is a possiblity of holding out for 30 days with new clients. You might not get every job if you do this, but you will reduce your exposure to risk.