It’s high time the government made 30-day payment terms for contactors mandatory

One of the most frustrating things about the late payment crisis gripping smaller businesses including contractor companies is that the solutions are obvious and easy. It’s the political will to implement them that is woefully lacking, writes Adam Home of Safe Collections.

A call we can all get behind

Contractor trade body IPSE (the Association for Independent Professionals and the Self-Employed) this month called on the government to make one of these fixes a matter of government policy. The association wants to see 30-day payment terms made mandatory for all small businesses including freelance consultancies and contractor companies.

In truth, it’s unbelievable to me that we haven’t had a statutory cap put on payment terms already. Yes, 30 days is the default if no specific terms are discussed between suppliers and their clients. But companies -- and we’re talking specifically about big companies here -- are otherwise free to insist on terms as long as they like, provided these are not “grossly unfair” to creditors. But again, what does and does not constitute “grossly unfair” has yet to be meaningfully outlined by successive governments.

Sixty-day terms usually come with an ultimatum

Many big businesses which engage contractors still use standard contracts that include terms for ‘60-day’ payments or even longer. In this day and age, with instant digital bank transfers, why would it take anyone 60 days to pay a bill?

Yet big businesses will often refuse to negotiate with one-person contractors on payment terms. ‘These are our standard terms, take them or leave them,’ they say. And the law, as it stands, lets them do it.

The marked, human impact of being financially left in the lurch…

IPSE research carried out recently underlines the detrimental impact late payments are having on the livelihoods and the health of people who work for themselves. It found that the average amount such one-persons suppliers are waiting on in unpaid invoices is now a swingeing £5,230. That’s up from £5,140 in 2020. According to the research, one in five say that waiting on money they are owed is leaving them unable to cover basic living costs. Ominously, 21% say they have used up all their savings as a result.

Unsurprisingly, this being left in the lurch is having a worrying impact on the mental health of these professional workers. Just under half said that waiting on unpaid invoices has caused them stress and anxiety. More than one in four said they had lost sleep worrying about their finances.

New rules have to be backed up with tougher enforcement

We wholeheartedly agree with IPSE’s call for mandatory 30-day payment terms for small suppliers like one-person services providers. Action to legislate on late payments is long overdue.

But changing the law alone won’t solve the crisis. Long payment terms are only part of the problem. The bigger issue is the way so many big companies openly flout the payment terms they have agreed, and do so with impunity.

An inordinate delay in receiving what’s rightfully yours

Indeed, the research found that 28% of freelancers have had to wait between one month and three months beyond an agreed payment deadline just to get paid. Almost one in five (18%) say they have had to wait more than three months just to get money that was owed to them. And 31% have had experiences of not being paid for work whatsoever.

None of this will change unless there are real and meaningful consequences for companies that don’t pay on time. In short, we need to make late payments unprofitable, with tougher financial penalties and easier processes for suppliers to recover costs.

Our current legislative tools aren’t really cutting it due to resistance

At the moment, suppliers can add interest to overdue invoices and claim “reasonable costs” for having to chase payment. But getting businesses to pay up both the interest and reasonable costs isn’t always straightforward. We might have a Small Business Commissioner in place, but we’re seeing little or no enforcement. If a company simply refuses to pay, the final recourse for a supplier is to make a claim through the civil courts.

At present, as a result of years of underfunding, the court system is in a shocking state. We’ve been involved in cases which have taken nearly two years to go through. Many freelancers just cannot afford to pursue cases for that long. Unscrupulous big businesses know they can just sit tight on claims against them and there is a good chance they will get away with it.

Dear government, end the fiddling

After years of fiddling around the edges of late payment, with voluntary codes and seemingly endless government ‘consultations,’ it’s hard to have any faith that the current government will take the decisive action needed to fix late payments. But until payment terms are put on a statutory footing that is fair to contractors and small enterprise, and ignoring terms is disincentivised with tough financial penalties and a rapid, fit-for-purpose claims system, the crisis isn’t going to get any better.

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Written by Adam Home

Adam Home is Managing Director of UK & International Debt Recovery Specialists Safe Collections. The company, founded in 1984, has more than three decades of experience in recovering unpaid invoices and contractual arrears anywhere in the world.
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