As mentioned above, there is substantial evidence showing that late payment is an ongoing issue affecting both small businesses and the self-employed.

Looking at our data, over half (56%) of the respondents surveyed said they had experienced late payment at least once in their self-employed career.

Lower paid freelancers (65%), as well as groups that have been found to have lower levels of income in self-employment[16], such as women (67%) and younger freelancers (65% of those aged 16-34) were more likely to have experienced late payment.

This is concerning considering that late payment is likely to further exacerbate the already difficult financial situation lower paid freelancers operate in, especially during the pandemic. For instance, when surveyed in April 2020, 74 per cent of freelancers said they had lost income as a result of the crisis.[17]

While over two in five respondents (43%) said they had experienced late payment at some point in their career before the outbreak of the coronavirus pandemic, a significant proportion – over a quarter (28%) – had experienced it in the last six months alone, illustrating the magnitude of the crisis.

Furthermore, there has been some evidence that levels of late payment have increased since March 2020. For instance, the Credit Protection Association (CPA) has found that the volume of overdue invoices increased by 209 per cent at the beginning of the pandemic.[18]

The Federation of Small Businesses (FSB) also found that 62 per cent of all small businesses experienced either an increase in late payments and/or had payments frozen completely as a result of COVID-19.[19]

Our own research found that among the self-employed specifically, there has also been an increase in late payment.

While close to half (46%) of the respondents surveyed said that instances of late payment had remained unchanged since the beginning of the pandemic, over a third (36%) said they had increased and only eight per cent said they had decreased.

Interestingly, younger (57% of those aged 16-34) and less experienced (53% of those who are self-employed for 1-3 years) freelancers were the two groups most likely to indicate they had experienced an increase in late payment since the outbreak of the pandemic.

This is in line with previous IPSE research showing that late payment threatens the future of freelancing, as younger self-employed people are particularly badly affected.[20] It is increasingly concerning to see that this has worsened even further in the months following the outbreak of COVID-19.

Late payment can have a significant impact on both freelancers’ wellbeing and their financial circumstances. It can have a negative effect on their savings, levels of debt and personal finances, causing irregularity of income – a top concern for the self-employed[21] – and preventing them from developing or expanding their businesses and saving for later life.

The data shows that close to a quarter (23%) of the freelancers who experienced late payment reported using up all or most of their savings as a result (Figure 1). Furthermore, another fifth (22%) had had to use their credit card or overdraft facility because of a delay in payment.

Late payment is affecting both freelancers’ personal and professional finances, with one in six finding themselves with no money to cover work-related expenses (17%) or basic living expenses (15%) as a result.

Women, younger and lower paid freelancers were the groups most likely to have ended up with no money to cover work-related or basic living expenses as a result of late payment. They were also significantly more likely to have borrowed money from friends and family.

Unsurprisingly, the financial difficulties caused by late payment also transfer to negative mental health and wellbeing for freelancers.

Late payment had a significant negative effect on the mental health of freelancers who had experienced it, with half (48%) feeling stressed or anxious as a result and a third (31%) losing sleep over worry (Figure 2).

Late payment also had a negative impact on freelancers’ ability to do their work, with close to a third (30%) feeling less productive, and a quarter experiencing lack of confidence (24%) or feeling unable to concentrate on work (23%).

Women’s mental health was most affected by instances of late payment, with female freelancers being more likely to report all the negative effects on mental wellbeing listed in the survey.

Differences were especially large when it came to experiencing a lack of confidence (37% compared to 18% for men), feelings of inadequacy/failure (30% compared to 12% for men) and losing sleep over worry (39% compared to 26% for men).

The same was also true for other self-employed groups that are less stable financially, including the younger, lower paid and less experienced freelancers, illustrating the connection between financial and mental health difficulties.

“There have been times when payments have been so late and my cash reserves were low, that I have worried about being able to pay my bills.”

Throughout my self-employed career I have experienced variable levels of late payment from clients. I usually find that a particular client either pays on time or is a late payer. On average I am waiting around three months to be paid for work that I have done and for this reason I try to maintain at least three months unrestricted reserve.

Fortunately, I was able to build up a bigger reserve prior to the pandemic but I have definitely seen instances of late payment increase since the outbreak of the pandemic. I am now seeing around 40 per cent of my clients paying late. This has reduced my business reserves and made me much more vigilant of my business outgoings.

It is a terrible drain. Watching my reserves reduce with no payment coming in to build them back up is a worry. It is also very difficult to contact the finance departments responsible for the payments, so I have no ability to chase payments except through my client. It is a delicate balance of asking my client to chase their finance department and not pushing too hard, and potentially losing future work.

Late payment is also affecting my mental health and usually means that I don’t chase payments as vigorously as I should leading me to bottle up the stresses and strains. It causes me anxiety and I have trouble sleeping, finding it difficult to sleep due to the constant mental dialogue of worry about money. I have even noticed a loss of appetite as a result.

There have been times when payments have been so late and my cash reserves were low, that I have worried about being able to pay my bills. You can imagine the stress and strain on my mental health and wellbeing.

I do try and ensure I am paid on time by including a clear statement of payment terms on my invoices. Whilst the payment terms do make some clients pay on time, instances of late payment continue and ultimately, I have no way of enforcing the payment term.

The increase in instances of late payment, however, is not the only factor contributing to the poorer financial wellbeing of the self-employed during the coronavirus crisis.

Previous IPSE research showed that at the end of March 2020, 69 per cent of freelancers said that the demand for the work they do had decreased as a result of the crisis.[28]

According to the Confidence Index, a quarterly survey that tracks the business performance and economic outlook of freelancers, demand for work continued to decrease in the second quarter (April-June) of the year, reaching its lowest point for the last seven years.[29]

In the second quarter of 2020, freelancers’ spare capacity, the amount of time each quarter they spend without work, reached the record of 5.5 weeks out of 13. The decreasing amount of work during the pandemic also transferred to a 25 per cent decrease in quarterly earnings for the freelancing sector.[30]

To address the decreasing amounts of work and the deepening financial difficulties of freelancers throughout the pandemic, the government introduced a range of support measures for the self-employed including the Self-Employment Income Support Scheme (SEISS), the postponement of changes to IR35 regulations, Bounce Back Loans (BBLS) and deferred VAT tax payments.

However, over half (56%) of the freelancers surveyed did not access any of the government schemes introduced to support the self-employed (Figure 4).

For those who accessed support, the most common measures included the Coronavirus Job Retention Scheme (CJRS) (15%), the Self-Employment Income Support Scheme (12%) and deferring self-assessment tax payments to July 2021 (12%). One in ten also deferred their VAT payments (10%) or accessed the Bounce Back Loan Scheme (10%).

There are substantial differences in the type of measures accessed on the basis of freelancers’ legal business form.

For instance, a third (33%) of sole traders took advantage of the SEISS . Limited company directors, who are not eligible for the SEISS, were more likely to access the CJRS (22% compared to 2% for sole traders), deferral of self-assessment payments (16% to 3% for sole traders) and VAT payments (14% to 2%) and access the BBLS (13% compared to 3% for sole traders).

Looking at the different demographic groups, women, younger and lower paid freelancers were more likely to access the SEISS. This could potentially be explained by the fact that these groups are more likely to be registered as sole traders.

Notably, none of those who became self-employed in the last year accessed any form of government support.

Approximately a quarter of the freelancers surveyed stated that they had used most or all of their savings (27%) or used their credit cards (23%) to support their financial situation during the coronavirus crisis (Figure 5). A fifth (20%) also withdrew money from their businesses and one in seven (14%) used their overdraft facility. One in ten had to borrow money from friends/family (11%) or sell items they owned (10%).

Therefore, the crisis is affecting not only freelancers’ current financial wellbeing, but is also likely to end up having a significant impact on their future financial health, as many used up their savings or accumulated debt. In fact, the percentage of freelancers with business debt increased from 22 per cent in quarter three (August-September) 2019 to 27 per cent in quarter three 2020.31

Women and also younger and lower paid freelancers were the groups most likely to have borrowed money from friends and family. Women and younger freelancers specifically were also more likely to have sold items they own to support their finances.

Younger freelancers were most likely to have used most or all of their savings, while those in the lower earning brackets were significantly more likely to have used their credit cards or overdraft facility.

Therefore, the groups that are already experiencing the greatest financial difficulties in self-employment have also been more significantly affected by the coronavirus economic crisis. It is likely that this has contributed to the dropping numbers of self-employed people in the UK since the beginning of the pandemic.

Recent Office for National Statistics (ONS) data showed that in the third quarter of 2020 (June-August) the number of self-employed people in the UK fell by 240,000 and reached 4.56 million, wiping out the growth in self-employment achieved in the last five years since 2015.32

Furthermore, not only is the crisis likely to contribute to people being forced out of self-employment, it is also likely to lead to many freelancers not being able to develop or expand their self-employed businesses in future.

For instance, limited company directors are ineligible for the SEISS and are also much more likely to have withdrawn money from their businesses, which could have a significant financial impact on them in the long-run.