In order to assess the prevalence of late and nonpayment within the sector, we asked freelancers whether they have experienced instances of such payment practices in their self-employed career and for those that had experienced these, the time beyond the agreed payment deadline they had to wait for the payment.
Delays in payment from a client
Over half of freelancers (54%) reported that have experienced a delay in payment from a client in their self-employed career which closely aligns with our findings from 2020 where 56 per cent of freelancers had experienced late payment in their career.5
Of these, over a third (35%) reported that they have experienced a delay in payment from a client in the last 12 months.
On the other hand, 44 per cent reported that they had not experienced a delay in payment from a client during their career in self-employment.
In terms of quantifying the time that freelancers have had to wait beyond the agreed payment deadline for a payment from a client, two-fifths (40%) reported that that they had to wait between one week and a month beyond the payment deadline for a payment.
A further 28 per cent stated that they had to wait between a month and three months for payment whilst concerningly, 18 per cent of freelancers reported that they had to wait more than three months for payment.
In addition, one in ten freelancers (10%) stated that they were paid less than one week beyond the payment deadline.
Experienced a delay in payment from a client
Average payment time beyond the agreed payment deadline from a client in the last 12 months
Delays in payment from an agency
The majority of respondents (67%) reported that they had not experienced a delay in payment from an agency in their self-employed career. This is likely linked to the fact that agencies are legally required under the Agency Workers Regulations to pay contractors on time after a 12-week period.6
However, almost a third of freelancers (30%) reported that they had experienced a delay in payment from an agency in their self-employed career, with almost one in five (18%) of these stating that they had experienced a delay in payment from an agency in the last 12 months.
In terms of quantifying the time that freelancers have had to wait beyond the agree payment deadline for a payment from an agency, over a third (35%) stated that they had to wait between one month and three months beyond the agreed payment deadline for payment.
In addition, 23 per cent of respondents reported that they had to wait between one week and a month beyond the agreed payment deadline for payment from an agency whilst 18 per cent indicated that they had to wait over three months from the payment deadline.
A further 15 per cent reported that they had to wait for less than one week beyond the agreed payment deadline for payment from an agency.
Experienced a delay in payment from an agency
Average payment time beyond the agreed payment deadline from an agency in the last 12 months
Concerningly, almost a third of freelancers (31%) reported that they have completed work and not paid for it, with 16 per cent of these stating that they have completed unpaid work in the last 12 months.
Experienced nonpayment for completed work
The majority of freelancers (66%), however, reported that they have not experienced unpaid work in their self-employed career.
We asked freelancers who had experienced late payment to estimate the average amount of money that they were currently owed by clients for the work they have completed. Respondents reported that they were currently owed an average of £5,230 for work they had completed which closely aligns with our findings from 2020 where freelancers who experienced late payment were owed an average of £5,140 for the work they had completed.7
In order to understand the financial impact of late payment on the sector, we also asked freelancers that had experienced instances of late payment about the knock-on financial consequences experienced as a result of late payment.
23 per cent of respondents stated that they had to use their credit card or overdraft facility as a result of late payment whilst 21 per cent reported that they used up all or most of their savings.
In addition, one-fifth of freelancers (20%) reported that they found themselves with no money to cover basic living expenses such as rent and bills after an experience of late payment.
A further 19 per cent stated that they had to borrow money from friends and family whilst 17 per cent indicated that they had to withdraw money from their business.
Other responses when asked about the financial consequences experienced as result of late payment included having no money to cover work-related expenses (17%), not being able to pay taxes or complete self-assessment on time (9%) and having to borrow money from a non-bank financial institution (8%).
Concerningly, five per cent of freelancers reported that they, as a result of late payment, have had to register for income support such as Universal Credit whilst an additional five per cent also indicated that they have had to face withdrawal penalties for accessing savings such as pension funds early.
Financial consequences experienced as a result of late payment
In order to understand how experiences of late payment impact on freelancers’ mental health, we asked whether they had suffered from any negative effects often associated with poor mental health as a result of late payment.
Almost half (49%) of freelancers reported that they felt stressed or anxious as a result of late payment whilst almost one in three (31%) indicated that they felt less productive due to an instance of late payment.
A further 28 per cent reported that they lost sleep over worry and 26 per cent experienced a lack of confidence as a result of late payment.
Other responses included feeling unable to concentrate on work (24%), feeling depressed (22%), experiencing feelings of inadequacy or failure (19%) and finding it hard to make decisions (14%).
Concerningly, 13 per cent also reported experiencing mental health problems whilst nine per cent indicated that they had experienced relationship breakdowns as a result of late payment.
On the other hand, almost one in three freelancers (30%) reported that they have not experienced any negative effects of late payment on their mental health.
Negative effects experienced as a result of late payment
In order to understand how the actions of the sector can mitigate the potential for late payment, we asked freelancers which measures they currently adopt to ensure timely payment.
The overwhelming majority of respondents (76%) reported that they make sure to invoice their clients on time in order to ensure timely payment whilst 74 per cent reported that they maintain good client relationships.
One in three freelancers (34%) also stated that they frequently chase for late payments whereas 23 per cent indicated that they go further and include a billing schedule in their contractual agreement or bill their client in instalments.
Other measures adopted by freelancers to ensure timely payment included using accounting software that sets up recurring reminders and alerts (22%), asking for upfront payment or a deposit (17%), including penalties for late payment in the contractual agreement such as charging interest (16%) and not delivering the work until payment is received (10%).
A further eight per cent reported that they get customers to pay by standing order or direct debit whilst six per cent offer a payment plan to clients who have troubles paying on time and 5 per cent actually offer a discount for prompt payment.
Measures adopted to ensure timely payment
While late payments have long been a scourge to freelancers, the cost-of-living crisis means that their impact is even more damaging. Bills and other household costs have risen exponentially in recent months and without the safety of regular payments, many more contractors will be forced to rely on savings, credit cards and overdrafts to survive.
With the mental health of contractors suffering and the amount owed per year rising to £5,230 – up from £5,140 in 2020 – the government and business leaders need to act now. The government needs builds upon last year’s reforms to the Prompt Payment Code by making sure that businesses are punished for not paying freelancers on time. For business leaders, they need to understand that their actions impact their reputation as well as the livelihoods of thousands of freelancers that help drive growth for their companies and the wider economy.
- Make 30 days the UK’s standard commercial payment term. As the number of people generating income from self-employed work increases, the need to ensure that freelancers and side-hustlers are paid within a reasonable timeframe becomes more urgent.
Under existing legislation, businesses are required to pay commercial invoices within 60 days. But in practice, the self-employed and other small suppliers often have little choice but to agree to longer terms dictated by more powerful clients, with some abusing their position to stipulate unreasonable payment terms.
The UK’s late payment laws equip small suppliers with the right to charge interest – but the near 25-year-old legislation fails to account for the advances in payment technology that have taken place since.
By updating the Late Payment of Commercial Debts (Interest) Act 1998, government can make 30 days the standard commercial payment term, whilst adding new conditions that make it more difficult for large businesses to propose and enforce longer terms.
- Back the Small Business Commissioner with a bigger budget for advice, mediation, and raising awareness of payment rights. By lobbying the UK’s largest businesses and supporting small suppliers with payment disputes, the Small Business Commissioner plays an important role in making the case for paying suppliers promptly.
With the Commissioner successfully unlocking over £1 million in late payments in 2020/21, we believe there is a strong case to back the work of the Commissioner’s office with more resources and staff, generating even better returns for the UK’s smallest businesses.
- Build a SME online dispute resolution platform. Building on the Online Court Money Claims pilot and the proposal and feasibility study carried out by Lawtech UK and the Ministry of Justice, government should commit to building an online dispute platform for small enterprises.
The platform could allow for a ‘one-stop-shop’ for the self-employed and small businesses to negotiate, mediate and settle disputes with binding outcomes whilst also reducing the judicial caseload for payment disputes.
The accessibility of such a platform would also encourage affected SMEs to press forward with payment recovery and disputes, rather than be put off by judicial proceedings.
- Introduce a legal requirement for medium and large-sized businesses to report their payment practices to shareholders and board directors in a bid to improve executive board compliance. A change in payment culture in the UK requires a top-down compliance approach, where shareholders and board directors actively encourage prompt payment from businesses.
With medium and large-sized businesses already required to publish their payment practices under Duty to Report regulations, government should require companies to file these reports to shareholders and board directors.
By requiring these reports to be presented to shareholders and board directors, it would encourage business leaders to consider their own payment terms and the potential reputational damage of poor payment terms.