Pay Up: How to end late payment for the self-employed

Late payment and unpaid work happen for several reasons. Many clients are inefficient at processing invoices quickly enough, often due to complex supply chains or poor internal communications. Genuine disputes about the delivery of a contract can bring delay too. Worse, where there are constraints on cash flow, organisations use delayed payment as a means of credit to shore up their balance sheets.

But there is a cultural issue as well, stemming from an imbalance of power between buyer and supplier. Freelancers find themselves in a weaker bargaining position with clients, which can lead to unfair payment terms at the outset of a contract, and have little support when it comes to chasing up invoices. Too many freelancers expect to provide free work, in the belief it will help their skills or gain them exposure. Contracts, particularly in the creative sectors, are sometimes based on verbal rather than written agreements so there are difficulties when it comes to enforcement. It is unsurprising that younger freelancers who are starting out and less experienced are ‘at risk’ in these circumstances.

Late payment is bad for individuals and the economy. Irregularity of income is the top concern of the self-employed, whose personal and financial incomes are intertwined.[3] Previous IPSE research in the creative sector has found almost half (45%) of freelancers did not have enough money to cover work-related costs, while four in ten could not cover basic living expenses (e.g. rent, bills) as a result of late pay.[4] Late or unpaid fees can prevent small enterprises from investing to expand and lead directly to business failure.

The UK has taken several measures in recent years to combat late payment. These have been a mix of voluntary steps aimed at increasing transparency and cultural change, such as the Prompt Payment Code and the Reporting on Payment Practices and Performance Regulations legislation, and more remedial policies. The Small Business Commissioner, created in 2017, can ‘name and shame’ companies that pay late, businesses with poor payment performance can be banned from bidding for lucrative public sector contracts, and since 1998 suppliers have had the right to charge interest on unpaid invoices.

However, there is no clear sign things are improving. The UK government’s preferred source of late payment data, an annual survey of invoices from Bacs, suggests SMEs are owed £23.4bn in overdue invoices, a higher figure than 2018-19.[5] Other estimates from banks and payment providers put the figure higher still, between £34bn – 131bn.[6]