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50,000 small businesses fold due to late payments each year

2-minute read

50,000 small businesses fold due to late payments each year
Lauren Hellicar

Lauren Hellicar

13 May 2019

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The self-employed make up over 15 per cent of the UK workforce – and face challenges that larger organisations don’t have to deal with – yet so many of their clients still think it’s ok to pay their invoices late.

A recent report in the Financial Times calls on UK law to back freelancers’ right to be paid on time.

Cost of late payments to the UK economy

According to the Federation of Small Businesses (FSB), 50,000 small firms go under each year because of late-paying clients.

The FSB estimates that the cost to the UK economy is as much as £2.5 billion.

Freelancers affected across many sectors

The problem has far-reaching consequences across a wide-range of industries, from creative professionals working in fashion and copywriting, to tech experts, to lawyers and consultants.

Not being paid on time – or sometimes at all – is seen by some as one of the risks you simply have to take as a self-employed person or small business owner.

But surely there must be some protection for freelancers?

UK law on late paying of invoices

Unfortunately, going to court is rarely seen as an option for small businesses, which are less likely than larger firms to be able to afford the associated legal fees. It’s a complicated process, too.

The Late Payment Act 1998 came into force before the rise in popularity of using freelancers on relatively short-term contracts. So it might be argued that it's no longer fit for purpose, because for small business owners struggling to get paid, the only way they can enforce payment is through the courts.

Some sneaky clients even use late payment of invoices as a way to keep cash in their own bank accounts, at the expense of their suppliers’ cash flow.

Freelance bodies fight back

But freelance bodies are saying, enough is enough, and are calling for solid contracts and clear procedures for the self-employed to discourage this unfair practice.

They’d like to see a complaints registration process put in place with local government bodies, which would give small businesses legal help and allow them to sue late-paying clients for double the unpaid invoice amount.

How New York tackles late payers

Here in the UK, we could learn a thing or two from the legislation that was brought into force in New York City in 2017.

Their Freelance Isn’t Free Law gives the authorities the power to enforce penalties against clients who don’t pay in full within a reasonable timeframe.

How can freelancers help themselves get paid?

While we wait for a change in UK law, there are a few ways freelancers and small businesses can help themselves:

  • Invoice as soon as possible
  • Keep on top of your accounts
  • Work together

Trade unions like the GMB have started to represent freelancers in negotiations with companies, but, according to the Financial Times:

“If [freelancers] want to effect change, they should remember there is power in numbers and especially when it comes to making their voices heard by legislators. For while union support is welcome, there is little substitute for policy action to secure the fair treatment their growing role in the economy deserves.”

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