Bookkeeping, invoicing, and getting paid

In order to operate profitably and smoothly, the directors of a contactor limited company must keep their financial records up to date. By doing so, invoices will be issued quicker and accounts will get filed faster.

In addition, a running record on expenses incurred should be maintained so that, at year end, when an accountant is preparing to send returns to both HMRC and Companies House, deadline submissions are comfortably met and personal & corporate tax liabilities are minimised.

In this section, we consider:

  • the importance of contractor bookkeeping software
  • keeping regular bookkeeping
  • providing estimates to clients
  • the importance of invoicing immediately
  • chasing clients for payment of invoices
  • offer clients a number of different ways to pay
  • keeping receipts generated by allowable expenses
  • putting money aside
  • separating personal and business finance
  • keeping business records safe.

The importance of contractor bookkeeping software

Most contractor limited company owners now use contractor bookkeeping software, normally recommended to them by their accountants whose systems will be able to take direct information feeds from their clients.

There are a number of specialist independent contractor bookkeeping software packages on the market.

As a basic rule, bookkeep regularly

Accountants generally recommend that contractor limited companies update their bookkeeping software as soon as an invoice is issued or received. By doing this, a lot of administrative time is saved and the chance that mistakes are made in the recording of transactions is minimised.

Independent contractor bookkeeping software packages link to both the current and savings accounts of limited companies. Once transactional information is downloaded from a bank, invoices paid can be marked against the relevant clients.

Provide estimates to clients

All online bookkeeping packages currently offer contractor estimate and invoice software. When meeting with a potential client, an estimate for the work can be sent via a mobile phone app or desktop software. If the client goes ahead with the order, the estimate then can be turned into an invoice.

Invoice immediately to boost your cashflow

As soon as a job has been completed or a milestone for payment reached, an invoice should be immediately issued to the client. Contractors are advised that, at the point of reaching agreement to start work for a client, that the name and contact details of the relevant person in accounts payable should be taken.

At the point of issuance for the invoice, it should then be emailed to the main job contact within the client’s firm and to the contact person within accounts receivable. This can be done with contractor invoicing software and/or a contractor invoicing app, standard parts of most bookkeeping packages.

Chase clients with due and overdue invoices

By updating bookkeeping software regularly, the director of a contractor limited company will be aware of the invoices that have become due for payment and those which have become overdue.

On average, 27% of invoices issued by UK contractors and limited companies are paid late. Late payment of invoices causes severe cash flow and viability issues for many businesses, particularly within the first 3 years of trading or during periodic downturns in orders.

Online bookkeeping systems can be programmed to send clients reminder emails before, on, and after the due date. Automation of this task saves contractors a great deal of administrative time and stress.

Offer a variety of different payment methods

According to Xero, the online bookkeeping firm, an invoice sent out with the options to pay of bank transfer and cheque will be settled in 38 days. If a credit or debit card option is offered in addition, the time taken reduces to 19 days.

Direct debits are becoming increasingly popular as is timesheet finance, a form of invoice factoring specifically aimed at contractor limited companies.

Keep track of receipts generated by expenses

In order to reduce personal and corporate tax liabilities as much as possible, all receipts should be kept and ideally paired with the relevant payment recorded in bookkeeping software. Care should be taken to classify each item of expenditure properly, where necessary making notes on how the expense was incurred and why that expense was incurred for the sole purpose of business.

It is possible to keep them as paper records however many bookkeeping software packages allow users to attach a scanned receipt to an entry or to take a picture of a receipt on a mobile phone.

Put money aside

It is much easier to predict when cash will leave a contractor limited company account than when it will come in. The amount of cash generated by and paid into a limited company depends on the volume of work available, the nearness to completion of that work, and the speed with which clients pay their invoices.

There will be some times when there is a lot of money in a contractor limited company bank account and other times when there is a lot less. Many contractor accountants advice that between 25-35% of paid invoices are kept aside in a savings accounts to pay tax when due and to provide working capital during slower trading periods.

Separate personal and business finances

A contractor limited company is a “person” with legal rights. Any money stored in a contractor limited company’s bank account belongs to the company and not to the directors of and shareholders in that company.

Failure to separate personal and business finances will mean that an accountant’s bill for preparing tax returns will be higher. This is because of the level of work involved in understanding whether an item of expenditure was personal or business plus tracking down the correct invoice or receipt to prove it.

Keep your records safe

HMRC expects contractor limited companies to keep records for up to 6 years after year end. If a claim has been made on a cost or expense and there is no supporting documentation or receipt, a previous tax bill may be adjusted meaning that an additional tax liability will become due.

Please note that PAYE records must be kept for up to 10 years.

Would you like more information on Bookkeeping, invoicing, and getting paid?

Explore More Resources

Decision Making

Is PAYE Better Than Umbrella?

If you are considering contracting you will need to decide on PAYE or umbrella.

It can be a difficult decision to make and contractors will inevitably be questioning which option will be the best for them.

To help every contractor get on the right track for them, in this guide Umbrella Supermarket looks at PAYE vs umbrella, outlining the key differences and how this will impact you.

using an umbrella company

Why Should Contractors use an Umbrella Company?

There are many reasons that contractors across the UK opt to work under an umbrella company.

Umbrella companies offer an easy way to contract and remove the need for the contractors to worry about the burdens of admin, finances, tax and IR35, all things that limited company contractors have to deal with.

For this reason, many contractors will be weighing up their options and questioning whether it is worth using an umbrella company in 2021. To help make the decision that little bit easier, Umbrella Supermarket has put together this guide on the pros and cons of using an umbrella company.


umbrella company fees

Does an Umbrella Company Charge Fees?

Any contractor that is considering operating through an umbrella company in 2021 will need to understand Umbrella Company fees - from why an umbrella company charges fees, how they are paid to how much the contractor will pay.

In this guide, Umbrella Supermarket answers those all-important questions to help every contractor know exactly where they stand when it comes to umbrella company fees.


What makes a good umbrella company

What Makes a Good Umbrella Company?

If you’ve made the decision to contract through an umbrella company in 2021, you will next need to find an umbrella company that’s right for you.

After all, there are lots of umbrella companies out there, so how do you know which one to choose?

To help you find the best umbrella company for you, in this guide Umbrella Supermarket outlines what makes a good umbrella company, so you can rest assured you’re making the right move.

umbrella company pensions

Guide to Umbrella Company Pensions

One of the many advantages to operating through an umbrella company for contractors is that they become an employee of their chosen provider.

In turn, this means that the contractor will be automatically enrolled onto the umbrella company’s workplace pension scheme.

To help contractors find out more about umbrella company pensions Umbrella Supermarket has put together this handy guide.


using an umbrella company

Beginner’s Guide to Using an Umbrella Company

If you are considering contracting through an umbrella company you will naturally have questions and queries over how they work.

After all, making the move to umbrella can be a big step for contractors. To help, in this guide Umbrella Supermarket explains how to get started with an umbrella company and share our top tips for using one in 2021.


PAYE and Umbrella

Guide to PAYE vs. Umbrella

PAYE or umbrella is a question asked by every contractor. Which one you opt for will have a big impact on your contracting career and lifestyle. So, it's important to make the right decision for you.

To help makes things a little bit easier, Umbrella Supermarket has put together this guide on PAYE or umbrella, outlining the key differences between each, to help you make the best and most informed decision for you.

Holiday Pay for Umbrella Contractors

Complete Guide to Holiday Pay for Umbrella Contractors

One of the many benefits to working through an umbrella company is that you will receive holiday pay as well as a range of other statutory benefits including sick pay, maternity and paternity pay.

To find out more about umbrella company holiday pay, and how to calculate how much you will be entitled to, Umbrella Supermarket has put together this handy guide.

umbrella company

When Shouldn’t You Use an Umbrella Company?

Contractors must make several decisions throughout their contracting careers. One big decision contractors have to make is how they will operate.

One way that contractors can work is through an umbrella company.

Umbrella companies have become an increasingly popular way to contract in the past few years, offering many benefits to the contractor. But, how do you know whether this option is right for you?

To help every contractor make the right decision for them, in this guide, Umbrella Supermarket explains when not to use an umbrella company.


The truth about HMRC approved Umbrella Companies

There are tons of benefits to using an umbrella company, which is why they have become such a popular option for contractors in recent years.

After all, an umbrella company takes away the stress and hassle of operating through a limited company whilst offering contractors a range of advantages, such as statutory rights, paying them a salary, deducting correct tax levels and National Insurance, and taking care of tasks like expense processing and invoicing.

However, as more and more contractors opt to use the services of an umbrella company, more providers have started to claim that they are HMRC approved.

To bust the myths around HMRC approved umbrella companies and get straight to the facts, in today's guide Umbrella Supermarket look at whether HMRC approved umbrella companies really exist, so you know exactly where you stand.

umbrella company costs

How Much are Umbrella Company Costs?

If you're considering making the leap to contracting, you will understandably want to know how much you will have to pay in umbrella company costs. After all, this amount comes directly out of the contractor’s pocket, so it’s important to be clued up on how much you should expect to pay.

To help contractors, in this guide Umbrella Supermarket answer the all-important question of how umbrella companies cost in 2021.