The Covid Cash Crunch: Freelancers, are you waiting too long to get paid?

Many sole traders in the marketing, media and PR industries are waiting an average of 34 days to get paid, according to a survey by YouGov for Tide.

And beyond that, we found that roughly one in six invoices submitted by such tiny businesses is still paid late, writes Sarah Young, VP of member engagement at Tide.

The Covid Cash Crisis (so far)

Worse still, late payments only seem to have become more prevalent during the ongoing covid-19 pandemic. In fact, at the heart of the crisis, the Federation of Small Businesses found that 62% of businesses had payments delayed in the first few months of the original coronavirus lockdown.

Understandably, Mike Cherry, national chairman of the Federation of Small Businesses, believes that “withholding” money, for services rendered, is pushing many small suppliers “to the brink”. And alluding to the pandemic, he said it’s pushing them “at a time when they're at their most vulnerable.”

The federation further argues that the UK’s “endemic culture of treating small businesses as free credit lines must end.” And quite right too, but how?

What are the signs you should shrink your ‘pay within’ days?

Well freelancers, if you ever find that you are struggling to pay your own suppliers or partners, or are finding it difficult to simply pay yourself, even while being inundated with work, then you are probably waiting too long to let clients pay you.

So you may want to take action to reduce the gap between completing work and getting paid.

Moreover, if you’re a creative freelancer, it’s likely such action is overdue.

Creatives’ generosity

Specifically in the media, marketing and PR industries, we found that sole traders offer comparatively generous payment terms – some 21 days. That’s unheard of by same size businesses in the construction, accounting/financial and retail industries, as they insist payment is received in 14 days, 16 days and just 7 days respectively!

Only manufacturers and techies are prepared to wait longer than creatives, with terms of 22 days and 23 days, respectively, our survey found.

How to change your credit terms

A good place to start if you want to change your credit terms is by first changing your mindset! This will make it easier to change your credit terms, because you will simply believe in what you’re doing.

The first step is to recognise credit for what it is.

Credit is a free loan. When you allow clients to pay you some time after invoicing, you are effectively giving them a free loan. You are under no legal obligation to give your customers free loans.

The second step is to recognise that there are no standard legal credit terms, and you are not required by law to offer 30 days, 60 days or 90 days of credit to your clients. Your customers may have their own credit policy, and they may demand certain credit terms, but you are not required by law to agree to them.

Let’s now look at the practical steps you can take to improve your credit terms, keeping in mind these ideas that credit terms constitute a loan, and that you are under no obligation to agree to unfair credit terms.

Approach 1: Incremental shifts

Unsure about changing your credit terms? You don’t have to change everything all at once!

If you currently offer 30 days’ credit, perhaps try reducing it to 20 days for one or two key clients. It may help to offer them a month’s notice – or more if your invoices are for significant sums – before you make the change.

Once you see how clients respond, you can either change your approach or continue to roll-out the new credit terms.

Approach 2: New clients, new terms

Shifting your credit terms with new clients is easier than updating your existing clients (recommended above in Approach 1).

Make credit terms part of your initial engagement discussion with new clients. Talk about how and when you will invoice. Ask if your payment terms will work for them. And make sure you reinforce any in-person discussion with a written contract, or at least your credit terms in writing.

Then, don’t be afraid to chase up payments as soon as they are overdue. If you’ve already given customers a period of free credit, you should really never have to wait longer.

Approach 3: Cash up front

Want to radically change your cashflow?

Why not ask for payment up-front? Or ask for a 50% deposit, with the balance payable on delivery.

This may seem extreme, but it only seems extreme because business has developed a culture of long credit terms and late payments. Think of it this way -- Amazon won’t send you a book until you pay for it. PC World won’t send you a laptop until you pay for it. You can’t leave Pizza Express until you pay for your lunch.

Remember freelancers, you are under no obligation to follow business traditions that do not serve you.

Approach 4: Communicate with confidence

It’s your business, and you are in charge. You decide how and when you get paid.

But there are a few things to consider when communicating a change to your credit terms.

Firstly, some of your clients may struggle to agree to your terms. If their own credit policy is dictated by a finance director, then an administrator in the accounts payable department may not have permission to agree to anything different. With some larger clients you may have to choose between accepting their payment terms or losing their business.

Many small and medium-sized companies will have more flexibility when it comes to paying your invoices. For these clients, you simply need to notify your contact (or the accounts team), and then update your invoices to show the correct ‘due dates.’

Keep in mind that many companies will have no qualms adhering to your payment terms. And remember that you are under no obligation to accept credit terms that don’t work for you!

Get paid on time, every time -- using the four ‘Cs’

As the FSB’s Mr Cherry suggested, large companies often take advantage of smaller companies and force them to provide free credit. But just because long credit terms and late payments are normalised in UK business culture, freelancers, you don’t have to accept the status quo.

With a confident, considered message and clear communication, you should be able to gradually improve your credit terms so that you get paid on time, and have the funds you need to build your self-employed business.