Freelancer horror stories - and how to avoid the same terrifying fate

With all the technology we now have at our disposal, becoming a freelancer can be a very attractive way to boost your existing income.

But, even if you want to go the whole hog and dedicate your entire career to freelance contracting, it’s very easy to make some big mistakes when working independently.

Neither experience nor inexperience are safety guarantees

These clangers, or ‘horror stories’ as they’re affectionately known, love rearing their ugly head at both the start of your one-person empire and at the other end -- when you’re such a self-employed veteran you become complacent!

In my 26-plus years of placing contractors and freelancers on temporary assignments, I’ve seen and heard my fair share of freelancer horror stories, writes VIQU’s Matt Collingwood, an award-winning business leader and mentor.

I’ve witnessed the good, the bad, and the downright horrific! For the most part, these massive missteps by freelancers and contractors were avoidable. So heed the advice dotted in and around the following terrifying tales of freelance working life and you should survive!

Know your enemy: And that can be the word ‘Yes’

Meet Graham. Over the years, Graham had built a steady stream of clients directly and by working via recruitment agencies. When the market was doing well, Graham would see his workload increase, but never to a level he couldn’t manage.

Last year, the elevated levels of spending in the contract market led to Graham getting excited and simply taking on too much work. He was genuinely worried about saying ‘no’ to additional work from clients that he had good relationships with, and didn’t want to jeopardise future business opportunities. So mistakenly, he said 'yes' -- too often.

At the same time, Graham was coming under pressure -- despite being an experienced contractor -- from existing clients to deliver the same quality of work without slowing down even half a knot.

Risks of sub-contracting

Graham panicked. He quickly reached out to some ‘contacts’ to help him but the reality was, these contacts were just others freelancers he knew -- yet he had never actually worked with any of them. Graham knew nothing about their quality of work.

Worse still, perhaps, Graham didn’t see the red flag go up from all the freelancers he approached having lots of availability. He passed them work and then as you’ve already sensed, some didn’t deliver what Graham’s clients expected.

Our supposedly experienced freelance contractor was left with dissatisfied clients (some of whom haven’t worked with him since), profits lost, and even harder to correct -- a tarnished reputation.

Due to him biting off far more work than he could chew at his normally high standards, Graham admitted to me that some agencies weren’t willing to pass him any work anymore. Awkwardly, as an agency boss, I had to consider whether we needed to make the same move too.

The sad thing is; Graham’s sub-contracting to inadequately equipped subcontractors could have easily been avoided.

A repeat customer? It’s four times more likely if you’re busy than overpromising/under-delivering

If you find yourself in a similar situation – i.e. overserviced, so you import some quick replacements who will be providing services to your clients, in your name, you must set clear expectations. Before you even get to this stage, you really should have set clear expectations for when the work could be executed by you and your self-employed operation, as standard.

If the client wants the work done sooner, there is no major issue with -- in this one instance -- the client going elsewhere. Your reputation will remain intact. Yes, there’s always a risk the client won’t come back in the future. But in my experience, the client is much more likely -- four times more likely to be precise -- to come back to a freelancer who says they're unable to deliver than committing and not delivering.

What does your small print say?

Aside from reputational damage, there’s also the risk of losing out on potential profits. Depending on the contract you sign with each client, if you don’t deliver, you could face financial penalties. Never overpromise and underdeliver.

And if you are going to sub-contract (check your contract with the client to see if such an arrangement is permitted), make sure the work is going to go to people who will uphold your quality of work.

With directing a freelancer company comes great responsibility, don’t neglect it

You can be a specialist in your field, but if you register a company with Companies House, often referred to as a Personal Service Company (PSC) (as a lot of freelancers do), you become an incorporated business owner too.

I’ve spoken to too many freelancers who have admitted to not taking their directorship of their limited company seriously, and then being stung because of it.

Meet Raj -- just don’t be like him

For instance, I remember speaking with a guy called Raj who openly discussed his lack of business acumen with me. He didn’t take his PSC seriously when he started out as a freelancer, and hadn’t spent any time reading up on what operating a PSC compliantly actually entails.

He only set up a limited company because he was told that ‘Ltd’ is best for tax planning. However, there’s a big difference between being efficient and smart about how you approach tax, and the ‘I’ll never get caught out’ attitude.

Unfortunately, the latter was the approach which Raj took. He used his company to purchase items for his family, including e-scooters and other electric goods! He put these goods and e-scooters (neither of which had any relevance to his business) through his company as a ‘business expense’ and brazenly submitted it to HMRC.

Dog food, don’t cheat, and divorce

In a separate but similarly eye-rolling case, I spoke with a freelance UX designer who put his dog food and vet bills through his business! No reputable freelancer accountant would advise that this is good practice.

In Raj’s case, an investigation was opened by HMRC, and he almost lost his home as a consequence. If this isn’t enough to encourage you to run your business properly (and don’t cheat on expenses), I’ve spoken with other freelancers who HAVE lost their homes; been made bankrupt, and even divorced because of the stress -- and it all arose from them trying to skimp, cheat, or manipulate their take-home pay.

Let’s be clear. Saying goodbye to your property or marriage happens to only a very minor number of mis-stepped freelancers. But it’s important to learn from their errors and realise this potential, terrifying reality if you choose the wrong path.

For some mad and bad freelancers and business-owners, it’s too easy to be fraudulent. These people make the mistake of thinking it’s just a numbers game and that the HMRC will never pick them out due to their cheat being financially- small in the grand scheme of things. But just ask Raj; it’s not worth the risk!

Get a good contractor sector accountant

My recommendation if you’re serious about contracting or freelancing is get yourself a professional accountant; someone with a good track record of advising temporary professionals like you who can offer you legitimate and compliant advice on tax planning, payments and expenses. Additionally, read up on the Companies Act 2006 and learn what your responsibilities actually are as a business director.

Cutting corners is for the birds!

With more companies in England and Wales going bankrupt in March 2023 than at any point since records began three years ago, you must mitigate all unnecessary risks for your business.

Promises? Not worth the platitudes they often come with

Meet Rosie. I interviewed Rosie for a role as a recruiter at my own company. She’d been freelancing, offering her recruiting expertise to a variety of companies. There was one company that she’d spent a lot of time supporting.

So much so, that this company owed her a mega £50,000. Every time she had asked for the money, she was promised she would get paid. Unfortunately, this company collapse before she was paid, leaving Rosie having to simply write off £50,000. That’s £50k she was rightfully owed -- gone.

This horrific episode dented Rosie’s confidence to the extent she chose to go back into permanent employment, seeing it as safer than working independently, on her own. And that was why she was sitting in front of me for an interview.

Get paid for your contract in advance, if you can

So how can you avoid getting into the same position as Rosie – having to write off thousands for services rendered because the paying client went pop?

First, you have to be brave and not be scared to say ‘no’ to claims of ‘we’ll pay you another time.’ Standing your ground on payment can be difficult when you’re starting out and trying to establish yourself. Asking for money can be particularly intimidating, but remember your payment terms told them what to expect on the financial front from the outset. By chasing payment, you are only protecting yourself.

As a new contractor (and especially if you are direct-to client), consider asking for payment upfront, or for a percentage now and the rest on completion. If you have doubts over getting paid due to the size of the business, you can ask for a personal guarantee from the directors of the business.

Do ‘due diligence’ on clients, agencies and other companies

You can also reduce the risk of picking a financially dud client by doing your own ‘due diligence’ before you engage with their business.

So look through publicly available information (like the records on Companies House) to see if the directors of the business you’re looking to work with have ever had any other businesses.

If they have business failures to their name, you know there’s a likelihood things could go south, along with your rightfully owed money!

Lastly, know there's value in paperwork and other protections

No matter how small the piece of work is, always send your payment terms and other Terms and Conditions. These terms should set out exactly what you are agreeing to provide, the timeframe for delivery, and payment expectations. Even better, just furnish them with a full freelance contract for your services; and add both their and your signature. Last but not least, when you send your invoice, make sure there are no mistakes or issues on the document you drew up -- don’t give them an excuse not to pay!

And if your payment terms are not met (i.e. you don’t get paid in time) consider working off the basis of doubling the payment terms. So if your payment terms are 14 days, after 28 days, if any work is outstanding, withhold your services. This can work wonders, whether you’re a recruitment agency owner like me, or an individual brand new to the world of freelance contracting. Take care out there freelancers!