Times are tough for many freelancers and small businesses in the UK. After the challenges of the COVID-19 pandemic, businesses are now contending with the cost-of-living crisis.
To understand how the crisis is impacting small businesses and the self-employed, small business insurer, Markel Direct, ran a survey on 560 freelancers and SME owners.
Unsurprisingly, the survey revealed that for many freelancers and small business owners, late payments and even non-payments are on the increase. Carry on reading to see the survey results and what small businesses had to say regarding the number of late payments they experienced and the typical value of late payments as well as:
- The industries most impacted by the cost-of-living
- How salary is being affected by the cost-of-living
- Freelancers and SME owners main concerns including rising costs and growing a customer base
- The top ten concerns for business owners
- The causes of rising costs
- Top tips for protecting your business' finances in these challenging conditions
Late payments on the rise for small businesses
Late payments have long been a common issue for small businesses and freelancers.
Out of those Markel Direct surveyed, around 22% of participants reported an increase in late or non-payments over the past year. Among these, 48% indicated that such payments exceeded their due dates by an average of 15 days. Furthermore, 13% reported writing off outstanding payments.
For 73% of those surveyed, the typical value of the overdue payments stood at £500 or below. However, some freelancers and SMEs reported significantly larger figures. In fact, 15 respondents reported experiencing late payments with an average value exceeding £10,000.
Late payments have long been an issue - around 37% of participants have encountered payment delays between one to three times over the past five years. An additional 22% have faced between four and nine instances of late payments, while a concerning 9% have experienced this issue ten times or more.
Despite the widespread nature of this problem, only a small fraction of those surveyed (less than 4%) sought guidance from the Small Business Commissioner, Citizens Advice or other organisations. Additionally, 56% were unaware of the support they could receive from these types of organisations on issues like this.
Rob Rees, Divisional Director of Markel Direct, reflected on the findings, saying:
"The cost-of-living crisis is impacting all of society, and this study highlights the impact on small businesses. Many are understandably not feeling confident about the future, but despite the unprecedented challenges faced, small businesses and freelancers are showing resilience by taking action.
"These challenges make cash flow all the more important for small businesses, and the increase in late payments only adds to the challenges. As a specialist small business insurer, we understand the challenges our customers face, which is why we're reminding our policyholders they have free access to an in-house 24-hour legal advice helpline to help handle tricky payment issues, and other legal matters they may face in the current climate."
How can I protect myself against late and non-payments?
To help manage late payments, it's extremely important to make sure that you have a written and signed contract for services for every client you work with. With a signed contract that outlines payment terms and conditions, if a client doesn't pay you on time, they are in breach of their contract, meaning you have grounds to take legal action against them.
Ensure that you state how and when you will be paid in your contract. You'll need to provide the information your client needs for the payment to be processed. In your contract, you can include terms for late payments – for example how and when interest could be added.
It may also be worth considering a milestone payment method where you ask for a deposit upfront, so that there's a financial tie-in from the beginning.
If a payment becomes overdue, call your client on the day to remind them that the payment is overdue. If, for a good reason, they are unable to pay on the day, try to agree on a new payment date.
If weeks pass by and you have still not been paid, you may need to seek legal advice from a solicitor. This is where being covered with legal expenses insurance can be helpful. If a client breaches their contract and you need to take legal action, legal expenses insurance can cover your legal costs and expenses.
If a client is refusing to pay and claims you haven't done the job to the standard they were expecting, you haven't completed the project assigned or that you made a mistake in the work you completed – again this is where having a signed contract for services will be extremely helpful.
In the contract, it should outline the tasks or projects you are required to complete, project delivery dates and time to be spent on the project. If a client makes a claim against you, you can refer back to the terms agreed in the contract and try to come to an agreement.
If they continue to refuse payment and allege negligence, again you may need to seek legal advice. In situations like these, professional indemnity insurance can be particularly helpful. If a client makes a claim against you of professional negligence – for example making a mistake in a piece of work, this type of insurance can cover the legal costs and expenses.
The industries most impacted by the cost of living crisis
Markel Direct's survey results revealed that the overwhelming majority (78%) of the freelancers and business owners polled, had experienced a rise in their costs last year.
Out of those who had experienced a rise, 70% noted an increase of up to 20%, with the remaining 30% noted an increase of over 20%.
The industries most likely to be affected by an increase in costs were:
- Recruitment and HR
- Public services (such as waste removal, healthcare and transportation)
- Construction
- Tourism and marketing
- Advertising and sales
Construction especially has been heavily affected by a rise in the cost of raw materials over the past year, as shown in the government's Building Materials and Raw Components pricing index.
As well as feeling the effects of rising costs, many freelancers and SME owners (43%) saw their revenue go down over the last year.
Click here to read the full article 'One in four small businesses hesitant about their financial future'.
Copyright 2023. Featured post made possible by Markel Direct.