Articles - 20th November 2018

Your 30 Days Are Up: Why Late Payment is Worse Than You Thought

Words by Joe Williams
Illustration by Ailsa Johnson

In freelancing, finding projects is one thing, completing them is another. But for some the real work begins when you’re finished: making sure you get paid.

According to cooperative IndyCube Community, ‘51% of invoices are paid late, with more than a third at least two weeks late.’ The consequences of this go without saying. In a 2016 study into poor payment practices, the Federation of Small Businesses (FSB) claim that if all late invoices to small businesses were paid on time, we would see a ‘£2.5 billion annual boost for the UK economy.’

Not only does late payment negatively impact the economy by drying-up spending, but freelancers are particularly vulnerable. A 2016 study by Ormsby Street found ‘UK freelancers are owed, on average, just over £5k in late payments.’ 

‘It’s a really big issue,’ says freelance journalist Charlie Brinkhurst-Cuff. ‘This is something that needs to be tackled at a government level.’ 

‘Since I started freelancing in 2015, it’s been a persistent and completely predictable issue, and one that all of my friends experience,’ freelance journalist and author Dawn Foster tells me. ‘The issue is compounded by the fact that until it’s late, there’s little you can do at all, and with each chasing email, you’re expecting to wait at least another week.’

Currently there is no dedicated legislation in the United Kingdom concerning freelance workers and timely pay. Part of the confusion is the actual term ‘freelancer’: for businesses, lobby groups, and freelancers themselves, the word is a slippery one, with many people not knowing which rights apply to them.

Jordan Marshall, Policy Development Manager at IPSE, the Association of Independent Professionals and the Self-Employed, says that what we describe when we say ‘freelancing’ is really self-employment, comprising sole traders and limited companies. If you’re a sole trader, you and the business are one and the same; whereas if you’re working as a limited company, there’s a legal distinction between you and your work.

‘The legal landscape is very complex, because there is no legal or statutory definition of self-employment,’ Marshall explains. ‘Self-employment is defined through the courts and case law, so knowing whether you are self-employed or not, or from a large company’s point of view, whether the people you are engaging with are self-employed or not, is very difficult. It’s incredibly difficult to navigate as an individual.

‘It would be good to have a statutory definition of self-employment, as it would offer more certainty to individuals and it would make it more difficult for unscrupulous companies to exploit people by pushing them into self-employment against their will.’

The key difference between completing work for a company as someone who is a self-employed freelancer rather than a regular employee is that there is no guarantee of more work. Businesses know this, and it is part of the reason that many take liberties when it comes to paying their contracted freelancers. Very often, if you’re chasing a late invoice your only point of contact will be whoever has been in charge of commissioning you, for example an editor, rather than someone from payroll. 

‘The balance of power is skewed entirely towards the companies paying late,’ says Foster. ‘Taking them to small claims court is intensely stressful, and they know full well that freelancers are worried that repeatedly chasing editors for payment risks annoying them and you losing work.’

Marshall tells me, ‘because you as a freelancer do not have the guarantee of future work, you are in a relatively weak bargaining position. The client can effectively hold you to ransom because you want future work, whereas a regular employee has many more protections in terms of unfair dismissal.’

But it isn’t difficult to ensure someone is paid on time: as Alec Dudson, Editor-in-chief at Intern Magazine tells me, ‘I only commission people when I know I have the cashflow to pay them.’ It’s clear that the businesses who are the worst-offending when it comes to paying freelancers late do so consciously and deliberately, rather than out of negligence.

‘I think that it is definitely a tactic that companies use to save money,’ says Brinkhurst-Cuff. ‘You hear through the grapevine about other freelancers who are also not being paid on time by this particular company, and then you’ll all get paid at the same time.’ 

‘It’s a question of priorities,’ suggests Marshall, ‘and put simply, companies don’t take paying freelancers on time as seriously as they do their employed workforce. In order to manage their cashflow, unscrupulous companies will often put-off paying freelancers as long as possible because they think they can get away with it.’ 

This all works in exactly the same way as what the FSB call ‘supply chain bullying’. In a letter to the heads of all FTSE 100 companies, Mike Cherry, chair of the FSB, defines ‘supply chain bullying’ as larger firms taking advantage of ‘the disparity of power in business relationships to squeeze their own suppliers, delaying payments to improve their own cash flow.’ 

As self-employed workers in the UK, freelancers can refer to the Late Payment of Commercial Debts (Interest) Act 1998. In accordance with this legislation, if an invoice remains unpaid after 30 days, additional recovery costs can be claimed for time spent chasing-up the late payment. If the funds owed are below £1000, a £40 fee can be added. Between £1000 and £10,000, £70 can be added. For £10,000 or more, it’s £100. But until the law changes, that’s all freelancers can do.

‘It’s your legal right to add interest to overdue payments,’ Dudson tells me, ‘so that can be used as a deterrent for late-paying customers. Although admittedly, it’s a negligible fee, you’d be surprised how effective a slight increase in fee can be in urging a client to process a payment. A larger statutory fine would likely help to encourage timely payment of freelance invoices, but I think it’s unlikely that we’ll see that kind of change in law any time soon.

‘There’s a number of interesting solutions in the fintech space, such as “smart invoicing” software,’ Dudson adds. ‘This sends automated payment reminders to clients as well as checking their credit rating before you work with them, which is designed to avoid you getting in an unwanted battle. Things like that — which help to shine a light on those who make a habit of not paying — could have a transformative effect on the culture of freelance work and pay.’

‘It is really disgusting that there is no automated system for freelancers to use,’ says Brinkhurst-Cuff, who suggests a centralised public platform of invoices and payments as a solution. Such a system would make the payment-recovery process quicker and cheaper for everyone involved by removing the need to make a court claim or go through an arbitrator. ‘A change in the law makes a complete amount of sense. I don’t see how it wouldn’t make everything simpler for everyone.’

Foster, on the other hand, suggests automatic fines for late payment, ‘both to recompense freelancers, but also to encourage prompt payment.’ Marshall suggests that such a system could be operated within the office of the Small Business Commissioner (SBC), who currently does not have the power to fine the worst offenders. 

There is an international precedent for this, as Marshall adds: ‘In New York City they have the Freelancing Isn’t Free Act, which sets out automatic payment terms, and if the client breaks these then they will be fined by the local authority. It puts the onus off the freelancers if they feel they aren’t in a strong enough position to be laying down the terms or unable to be constantly chasing up payment.’ Crucially, this act specifies ‘protection from retaliation’, which is an important step in tackling supply chain bullying and thereby dismantling the culture behind late payments. 

It seems that a similar act could easily be brought to the UK. Marshall points out that ‘in the public sector there has been improvements, such as the prompt payment code, which mandates 30-days’ payment terms. But the private sector is a lot different and that is where most of the bad practice takes place.’

Fines could also be used to publicly ‘name and shame’ the perpetrating businesses. The FSB suggest that naming and shaming the worst offenders through the SBC should be used to ‘specifically target examples of supply chain bullying.’ Marshall likens this to the public indignation to unpaid internships over recent years, ‘which in some ways has become an unacceptable practice because the worst offenders have been named publicly and no longer feel able to do it. The threat of embarrassment and being seen to be treating freelancers unfairly may be more of an incentive to change practice.’

Whilst in early October, the government and the SBC published a call for evidence concerning late payment to small businesses that will close at the end of November, for now a change in the law looks unlikely. Matthew Taylor’s review to the government, Good Work: The Taylor Review of Modern Working Practices was published over a year ago, and yet despite the report’s evidence from Citizen’s Advice Newham that ‘The most common employment enquiry is unpaid wages’ nothing has yet been done about this specific issue.

Similarly, a recent petition started in September 2018 to ‘Establish penalties against companies for systematic late payment of invoices’ has struggled to receive even close to two thousand signatures in the two months it has been active. That’s a mere fifth of the number of signatories required for a government response, and a fiftieth of the amount needed for a debate to be considered, let alone held. Clearly, the issue just isn’t getting the exposure that freelancers think it deserves. As Brinkhurst-Cuff tells me, ‘I don’t think it’s high on anyone’s agenda. There definitely needs to be a campaign around the issue.’

What can you do right now?

In advance of agreeing to any work, you should agree a price in writing. When the work has been completed and the client is satisfied, send a dated invoice. This document should include the work completed, the amount owed, and should always specify a payment deadline of 30 days from the invoice date. If you send the invoice before you complete the work, the deadline is 30 days after the work is completed. 

After those 30 days, you can send a second dated invoice with added recovery costs, in line with the above-mentioned Late Payment of Commercial Debts (Interest) Act 1998. You can read more about this here.

You can respond to the government’s call to evidence about late payments to small businesses here. 

Always keep a record of everything and be vigilant. If you’ve done the work, that money belongs to you. At the moment, unscrupulous bosses bank on your being too polite or too afraid of losing potential work to ask. 

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