Now’s the time to banish the scourge of late payments to the self-employed

The ‘scourge of late payment’ is a phrase which has frequently been used in recent years, and for good reason.

It denotes a very real problem affecting thousands of self-employed workers and sole traders across the UK – and perhaps, worryingly, that problem is bigger than ever today, writes Andy Chamberlain, director of policy at The Association of Independent Professionals and the Self-Employed (IPSE).

A devastating impact

Not being paid on time can have a devastating impact on small businesses and is arguably more serious than ever during a cost-of-living crisis, when costs are rising and wages/fees are failing to keep up with inflation.

The crisis of late payment is so bad that the failure to get businesses to pay self-employed workers on time is forcing many freelancers to make difficult decisions around their finances, or so our research has found. In fact, one in five self-employed workers (20%) have reported to us that they found themselves with no money to cover basic living expenses such as rent and bills after an experience of not being paid on time.

Unpaid invoice = anxiety for half of freelancers

What’s more, nearly a quarter (23%) have had to use their credit card or overdraft and a further one in five (21%) have used up all or most of their savings as a result of a client not paying in line with payment terms.

Late payments have also had a devastating impact on the mental health of self-employed workers.

Almost half of freelancers (49%) have felt overwhelmed and anxious as a result of overdue invoices, with a significant number noticing a dip in their overall productivity as a result. Self-employed workers have also lost sleep, felt inadequate, and have questioned whether they still want to work as a freelancer.

The failure to tackle the problem

Solving the crisis of late payment is therefore essential to restoring productivity and freelancer confidence and helping the financial wellbeing of thousands of self-employed workers. However, ending the culture of late payment is easier said than done.

Despite the government implementing a series of reforms such as strengthening the Prompt Payment Code and creating the Small Business Commissioner, the crisis of late payments is only worsening. In particular, the average amount owed to freelancers due to late payments has remained relatively static over the past few years, but it rose from £5,140 in 2020 to £5,230 in 2022.

Moreover, our latest research shows that more than a third of self-employed workers (35%) haven’t been paid on time in the last 12 months - with nearly one in five (18%) of the polled freelancers reporting that they had to wait over three months for a client to send over what they are legally owed.

Solving the crisis

The government needs to step up and build upon their existing reforms to the Prompt Payment Code by ensuring that businesses are penalised and held accountable for their actions.

And fortunately, a blueprint for action already exists. Whether it superimposes it on the UK partially or in full, it’s our belief -- and hope -- that the government learns from the State of New York’s ‘Freelance isn’t Free’ Act.

Implemented in 2017, the act forces companies to pay freelancers within 30 days, regardless of whether they have a contract or not. The act has already proved influential, in 2018 and 2019, with 1,191 cases coming under the protection of the new law.

In the UK, we need our own version of the Freelance isn’t Free Act, so that freelancers can be safe in knowing that they will be paid on time. Specifically, the government needs to go a step beyond the Prompt Payment Code by banning payment terms over 30 days.

Finally, the future for freelancers can be bright…

While late payments have long been a scourge to freelancers, this doesn’t mean that they always will be. If the government takes action and builds upon the work that it has already achieved in tackling the issue, then freelancers going forwards can be safe in knowing that they won’t have to max out their credit cards or dip into their overdraft just to get by. Instead, they will be able to thrive, plan for the future, and invest in themselves and their business.