Contractor late payment times 'getting worse, rather than better'
Liz Barclay, the Small Business Commissioner, has admitted that late payment is “getting worse rather than better,” even if the UK economy is coming out of covid.
Almost a year to the month she became SBC (which was set up to curb late payment), Ms Barclay conceded that as a “problem,” late payment is “probably” bigger than it was.
And contractors themselves are more likely to agree than disagree.
In fact, 24 per cent of contractors say getting paid late has become “more common” in the last 12 months, according to a new survey by WondaPay.
That compares to just 12 per cent of contractors who last month told the firm, an escrow service for independent workers, that prompt payment was getting “better.”
Adam Home, of Safe Collections, agrees that recovery from the pandemic doesn’t necessarily mean payment times for small contractor companies are recovering too.
“It’s a depressing fact that late payments are on the rise,” Mr Home, the debt recovery agency’s senior collections manager told ContractorUK.
Interestingly, while being ‘paid late’ is part of the problem, “it’s not always about overdue invoices” clarified Ms Barclay, who spoke to the First Voice podcast on Feb 28th.
'Small suppliers tend to accept long payment terms'
Instead, because small suppliers emerging from the pandemic-hit trading period desperately want work, they “tend to accept” payment terms problematic to good cashflow, the commissioner explained.
Again, the WondaPay findings tally. Based on a survey of 500 contractors who hadn’t used its service, the firm found most respondents (62%) had less than 10% of their invoices paid late.
However almost 40% still have to wait four weeks for money to hit their account; 13% have to wait as long as two-to-three months, and 6.2% have to wait “longer than three months”.
'Significant amount of time to wait to get paid'
Of its findings, a spokesperson for WondaPay said: “The average payment terms are net 30 days – yet it’s usually not set out by the freelancer but by the company they work on behalf of.
“[While 30 days is often seen as standard], if someone invoices for a month's work at the end of the month, 30-day terms means payment 60 days from starting the work.
“So it’s a pretty significant amount of time to wait. Those outfits taking over two or three months [to pay] might be bigger organisations or having to chase payment down themselves.
“And big businesses still having cash flow issues themselves is possibly to blame, but so too is such businesses simply not prioritising freelancers’ invoices.”
'Five months wait to get paid'
On the podcast, Ms Barclay reflected: “Quite often, it’s about late payments in [the sense] that contracts have been agreed that allow for payment in 60 days; 90 days, 120 days.
“I’ve even seen, [just] a fortnight ago; 150 days. Now that is five months beyond doing the work, putting the invoice in.”
“We need bigger businesses to understand that smaller suppliers are absolutely vital to their big businesses. And therefore they need to pay them quicker -- we would like to see them paying them within 30 days.”
'Eight-plus hours chasing outstanding invoices'
According to WondaPay, about half of freelance professionals spend less than an hour chasing payment once payment terms get flouted.
But firing off a quick late payment letter or email and getting the monies in reply, is far from guaranteed, given the firm found 15% spent up to 2 hours chasing – each month.
Furthermore, a significant 14 per cent spent invested between three and eight hours chasing each month and, somehow, four per cent spent “8-plus hours” to get their dues.
'Use software, escrow, or take deposits'
The WondaPay spokesperson reflected: “Chasing late payers is a pretty time-consuming job -- potentially due to having to chase down accounts departments, resend invoices that have gone missing or, in the extreme, going down the legal route.
“We recommend using automated software to chase, use escrow, or take deposit payments to help avoid having to chase late payments at all.”
Sounding curious about how much money was at the end of those eight-hour chases for some contractors, Safe Collections’ Mr Home advised: “You need to be smart about how much time and effort you put in, proportionate to the sum that is outstanding.”