Late payments are still prevalent for UK freelancers. What can we do about it?

Our first monthly column for Free-Work isn’t going to be a massively positive one.

That’s because just a single instance of late payment can be commercially crippling, even totally financially devastating, for freelancers in IT and other sectors, writes Andy Chamberlain, director of policy at The Association of Independent Professionals and the Self-Employed (IPSE).

Freelancers, have you got a financial buffer in place for when you’re unpaid?

Today in 2023, the late payment culture in Britain is still so deeply enrooted that many freelancers now put in place significant financial reserves to cover against instances of late and non-payment.

And where a financial buffer can’t simply be reached for, we know of freelance business-owners potentially sacrificing inward business investment simply not to fall victim to late payment, and the arduous process of recovering unsettled invoices.

Our wish for Autumn Statement 2023…

The creation of the Small Business Commissioner and the Prompt Payment Code (both recent efforts to tackle the UK’s late payment culture), have been welcome. But have these efforts gone far enough?

Research from us only very recently revealed that late payment is not for the first time, on a concerning upward trajectory.

We believe that at upcoming Autumn Statement 2023, or even before it if possible, further reform and regulation must now be implemented by the UK government to end the use of antiquated payment terms, so we can really tackle perennial late-payers.

The scale of the late payment problem

Instances of late payment aren’t just leaving freelancers unpaid or financially worse off than last month -- instead, they could actually break a freelance business.

A study we did last year revealed that, on average, contract and freelance workers are owed a hefty £5,230 in outstanding invoices.

To put that sum in context, it’s the difference between making a mortgage payment on your home, or paying HMRC -- or neither, and the repercussions which come with both of those unenviable outcomes.

Similarly, the research also revealed that one in five freelancers have found themselves without the money to cover basic living costs due to an unpaid invoice.

Are recruitment agencies any better than clients when it comes to late payment?

In short, yes, agencies are marginally more likely not to leave freelancers in the financial lurch that clients. But, to us, the fact that agencies aren’t superb either -- when it comes to paying one-person enterprises on time -- only shows the need for further, bolder action on late payers.

Back to the cold hard facts, if I may.

Over half of freelancers (54%) have suffered a delay in payment from a client. Out of this 54%, more than one third (35%) reported that they have experienced such a payment delay in the last 12 months.

When asked to quantify the delay, 40% of freelancers reported it was more than one week late, but less than one month late. A further and not insignificant 28% had to wait between a month and three months just to receive what is rightfully theirs.

The (recurring) 18 per cent problem

Most concerning of all, perhaps, a significant 18% of freelancers had to wait more than three months. Again, this waiting an entire fiscal quarter was simply to get paid for services rendered, products provided, or work completed.

In comparison, 30% of freelancers have experienced a delay in payment from an agency during their self-employed career, with almost on in five (18%) experiencing such a delay in the past year.

Again, when asked to quantify the delay in payment, 23% waited between a week and a month; 35% waited between a month and three months. And strikingly, exactly the same proportion as those who were direct-to-client and had to wait the longest to get paid -- 18 per cent, were forced to wait over three months for their agency to settle up as well.

Regulations work, clearly

Maybe we shouldn’t therefore let agencies off the hook at all, by saying they’re marginally better payers to freelancers than when freelancers are direct-to-client.

However, the slightly improved position for such agency freelancers is likely linked to the fact that agencies are legally required under the Agency Workers Regulations to pay on time, after a 12-week qualifying period.

Perhaps this is a sign that the UK should introduce stricter rules and enforcement for late-paying clients? Maybe introducing regulations and ensuring they are abided by would finally start to get the age-old enemy of late payment off the back of hard-working freelancers.

IPSE’s ‘30 days is plenty’ campaign

Back in July 2022, IPSE was the first to call for the UK’s standard commercial payment term to be brought down to 30 days -- a move we believe would help to tackle the current late payment culture.

Thanks to technological advancements (and banks wanting funds quickly), payments can now be made in a matter of moments.

Yet oddly, the UK continues to allow large companies and big organisations to propose and implement longer payment terms.

That’s why along with introducing 30 days as the UK’s standard commercial payment term, new provisions should also be required to ensure that larger outfits are legally unable to include extended payment terms in their contractual negotiations. We’d like to see a move towards these new provisions at Autumn Statement 2023 if not before.

To the doubters, I say this. We’ve already seen similar legislation passed in Belgium -- only this year. The legislation made contractual payment terms beyond 60 days unlawful, and it’s our position that the UK government would be wise to bring in such protections for our smallest businesses -- freelancers.

What are your options for recovering unpaid invoices?

Freelancers can claim interest and debt recovery costs if a payment has been missed.

By law, you’re permitted to claim statutory interest for late payments up to six years in the past, and you’re entitled to claim up to 8 per cent interest on top of the Bank of England base rate.

Similarly, the Office of the Small Business Commissioner (OSBC) has successfully got back over £8 million in unpaid invoices for small businesses since 2016, including for the likes of Free-Work readers -- IT consultants and freelancers.

While we continue to press the UK government to do more to keep late payment from crippling our most agile independent workers, remember that you too can make use of the office’s resources if you’re struck by a late payer -- or file a complaint to the OSBC about a payment dispute where they will then work on finding a resolution.