IPSE, the Prompt Payment Board, late payment and what it means for you

The ‘scourge of late payment’ is a phrase which has been frequently used in recent years and it denotes a very real problem. Not being paid on time can have a devasting impact on small businesses. It is arguably more serious than ever during a global pandemic when work opportunities are scarce.

IPSE has persistently lobbied the government to do more on this issue and while we have made some progress, problems remain. That is why the Small Business Commissioner, working with the Department of Business, Energy and Industrial Strategy (BEIS) has set up the Prompt Payment Code Compliance Board. We are pleased to report that IPSE will have a seat on that Board.

The Compliance Board is the next step in the relaunched and reformed Prompt Payment Code (the Code). It will play a key role in the continuing evolution of the Code and in developing the methodology for measuring compliance with its requirements.

IPSE research from last year revealed 56 per cent of freelancers had experienced late payment in their career and, concerningly, this figure increases substantially for groups such as lower paid freelancers (65%), women (67%) and younger freelancers (65% of those aged 16-34). More than half (60%) of the freelancers surveyed also said they were asked to complete work for free to gain skills, exposure or industry experience while self-employed.

Put simply, late payment is costing the self-employed time and money at a moment when they urgently need more of both. Our research showed, on average, freelancers wait 32 days to receive a payment from a client. However, a significant proportion – one in seven (15%) – usually have to wait 59 days or more to receive payment for the work they have completed. Freelancers who experienced late payment are currently owed an average of £5,140 for the work they have completed.

This has serious knock-on consequences for their finances. Looking at freelancers’ financial circumstances, close to a quarter (23%) of those we surveyed reported using up all or most of their savings as a result of late payment. Over a fifth (22%) also had to use their credit card or overdraft facility, while one in six found themselves with no money to cover work-related expenses (17%) or basic living expenses (15%). The need to access other sources of income is unsurprisingly most acute among those groups – such as younger and lower paid freelancers – at the more precarious end of self-employment.

The impact is not just financial: not being paid on time can lead to stress, anxiety and deteriorating mental health. Last year IPSE research revealed the number of self-employed people saying they have “poor” or “very poor” mental health had increased from 6 per cent to 26 per cent since the beginning of the pandemic (a 300% rise). Now, more than ever, we need government to stand up for our smallest businesses and the individuals that run them.

One of the Board’s first tasks will be to review the Code compliance processes to ensure the Small Business Commissioner delivers fair, transparent, and appropriate sanctions where a signatory is found to be in breach of the Code. This will include, where appropriate, agreeing suspension or removal from the Code for persistent late payers.

We intend to use our position on the Board to ensure client organisations are held to account. For too long these large entities have withheld payment to benefit their own cash flow to the detriment of much smaller entities in the supply chain. There’s still lots of work to be done - we need to change a culture which has persisted for decades - but we fully intend to keep up the pressure on this vital issue. The establishment of the Prompt Payment Code Compliance Board, and IPSE’s seat on it, is a welcome step in the right direction.