Late payments threaten to derail the freelance industry

UK freelancers are increasingly struggling with late invoice payments, with around half admitting they have considered quitting life as a freelancer because of worries over continued late payment, and 46% stressing about having enough cash to live on.

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Our latest research here at Ormsby Street, also reveals that one in ten freelancers have faced difficulties paying their mortgage or rent because of late invoice payment, and many have turned to family (37%) or even payday loans companies (36%) to cover a shortfall brought about by late payment.

While a fortunate 19% of respondents say most of their invoices are always paid on time, a freelancer’s invoices are paid on average 18 and a half days after their due date. At any one time, a freelancer in the UK is owed on average £5,431.03 in late payments and 79% of freelancers say that cash-flow is the number one concern for their business.

“Every freelancer knows that late invoice payment is one of the biggest frustrations, impacting cash-flow and causing much stress, from paying the mortgage to having enough money to live on,” said Martin Campbell, Managing Director, Ormsby Street. “For a freelancer to be owed more than £5,000 is clearly unacceptable and threatens the emerging freelance economy in the UK, which brings flexibility and work / life balance to so many.” 

The Office for National Statistics revealed in 2015 that 4.55 million Britons are now their own boss and research by the Association of Independent Professionals and the Self-Employed (IPSE) found three in five businesses agree that it would be difficult to operate without hiring freelancers. The Ormsby Street survey of 1,002 freelancers and sole-traders, revealed that 40% of respondents have taken out a County Court Judgement (CCJ) in the last year to chase a bad debt, and more than half say that late invoice payment is getting worse not better.

It remains a problem for many freelancers when it comes to chasing clients over late payment, partly because they do not have the time to spare, but also because of fears this might impact future work with that company.  57% of respondents say they worry that if they chase for payment that client might not use their services again, while two-thirds say they feel uncomfortable and awkward chasing clients for late payment.

“Why should a freelancer waste their own billable hours chasing payment for work that has been successfully completed and is already due for payment,” continued Martin Campbell. “If customers are not willing to pay within the agreed terms then it’s time for freelancers to become more informed over whom they work with, and either ask for payment upfront or even choose to not work with company.”

Special Freelancer rate!

With 49% of freelancers having had to turn down a contract because of concerns over a client’s ability / willingness to pay on time, we’re offering access to CreditHQ for the special freelancer rate of £12.50 for the standard subscription; allowing freelancers to obtain financial insight into every company they trade with. Sign up here to take advantage of this offer

“Freelancing has grown in popularity because of the choice and flexibility it gives people over their career, but its success relies on the prompt payment of invoices, which is not happening enough,” concluded Martin Campbell. “Credit-checking potential customers and partners is straightforward to do and should be done by a freelancer every time they work with someone, to protect themselves against late payment.”

About the research

An online survey of 1,003 freelancers and sole-traders was undertaken by TLF Research in March and April 2016.

CreditHQ, the credit-checking tool built by Ormsby Street, collates credit and trade information from Companies House, Experian and Dun & Bradstreet and presents that information in simple-to-understand credit and payment indicators, so a freelancer can assess which businesses are likely to pay them on time, or after 30 or more days.

Formed in 2014 to take over the operation of the financial data proposition of BCSG, Ormsby Street is developing the next generation of financial data services for small businesses. Its team of high-performing product innovators and software engineers are quietly taking sophisticated financial information and turning it into a next-generation digital tool to help businesses make good decisions about customers, suppliers and themselves.

Your rights with overdue invoices

You’ve worked hard to win a new customer. You’ve worked hard to deliver a quality product/service for the customer. But now the customer is making you work hard to get your invoice paid. That can’t be right, can it? It isn’t right, but there’s nothing you can do about it is there? Wrong. There is! You have rights and you shouldn’t be afraid to exercise them in order to get paid. You’re (probably) not running a charity. You have bills to pay and employees who have families to support; so getting your money is really important. And the government know this so they’ve put in place mechanisms in order to support you in getting paid.

business man and invoice

Payment terms It’s always best to have your own payment terms laid out because these will more accurately reflect the needs of your business and you can set these to be whatever you need. 7 days, 30 days, or 100 days. It’s up to you. However, if you haven’t explicitly given terms to your customer then the default is 30 days and it’s within 30 days that they have to pay you.

Charging interest Once the invoice becomes overdue then you are perfectly entitled to charge interest on the amount owing. This would be either your own rate of interest if you’ve included it within your terms, or it could be the statutory rate of interest, which is 8% PLUS the Bank of England base rate for business to business transactions. Don’t be afraid to do this, because it’s your money that they’re stopping you accessing. You could be gaining interest on that yourself if it was in the bank, or you could be investing it in obtaining further work, and you can’t until they pay you.

Statutory demands If all else fails, anyone who is owed money can make a statutory demand and you don’t need a solicitor to help you. Once the demand is received by the company owing the money, they have 21 days to either pay the debt or reach a payment agreement with you. If this isn’t forthcoming then you can start a winding up order against the company. But hopefully all our customers will pay on time and we don’t need to worry about any of this!

Top 5 Tips For Chasing Invoice Payments

invoicejulyDon’t you just hate it when people don’t pay their invoices on time?

You’ve done the work.  You’ve given them 30 days to pay it.  And when day 31 arrives you still can’t see the money in your bank or a cheque on your desk.

You now need to spend time chasing payment when you really want to be doing more work.

So how can you reduce the time spent chasing payments so you can do more productive work?

1. People pay invoices not companies

It’s easy to think that “Company Y” owes me money, but when it comes down to it, it is Person X in Company Y that will write the cheque or transfer the cash.  You need to find out who that person is, by name, and get them on the phone.  If you’re not speaking to them then you’re not speaking to the person who can do what you want.

2. Keep to the point

Once you’ve got them on the phone, make sure you don’t get sidetracked into discussions about things that aren’t any of your business. You don’t care that they are in the middle of an audit, or that the financial controller is about to go on holiday to Greece for a week.  You care about when your invoice will get paid!

3. Get specific promises

Sometimes there will be reasons why they haven’t paid on time, but find out what they are and determine what your new best friend is going to do about it. Get them to tell you that they’ll pay it next Monday when the boss is back in and can sign the cheque.  Get them to tell you that they will make the transfer this afternoon.  If it’s specific then you have something to go back to them with in case it doesn’t happen.

4. Make sure everyone wins

It’s always difficult to push one of your customers for money.  After all, they’re your customer and you don’t want to annoy them and risk them going somewhere else.  So if you need to negotiate on when you get paid, make sure that they get something out of it too.  Tell them that they can pay 50% now and 50% when they get paid by their big client next Tuesday.  Tell them that if they can get payment to you by this Friday then you’ll make sure that they’ll have you available next month when they need something doing.  There’s always something they want, so find a way to give it to them in return for your money.

5. Don’t give up

It’s your money they’re holding on to, so don’t give up until you get it.  If they really aren’t paying you then do you really want them as a customer anyway?  If they aren’t giving you any money then they are the same as all the non-customers that you have.  So keep on the phone to them when they fail to deliver on their promises, and if that doesn’t work then you have rights to chase them for payment  – so take action!