Micro-businesses at risk from slow-paying clients

One in eight micro-business owners in the UK has had to wait a year or more to get paid by one of their clients, according to new research published by cloud accounting specialist FreeAgent.
In a poll carried out by YouGov on behalf of the Edinburgh-based firm, 13% of micro-business owners surveyed said they had to wait for at least a year before a client had settled an outstanding invoice – while 46% said that they had waited two months or more to get paid by a client.
The research, which surveyed more than 500 micro-business owners and sole traders, found that 86% of micro-businesses which issue invoices said they had been paid late, while just 14% said they had never been paid late.
The survey also suggested that some respondents didn’t view chasing late-paying clients as a matter of urgency. Nearly a third (31%) of respondents said they wait for a month or more after their payment deadline has passed before chasing up an unpaid invoice, while only 28% said they would chase an invoice within the first week after it was due.
FreeAgent CEO and co-founder Ed Molyneux said: “When you’re running a business it’s really important to get paid quickly – late-paying clients can create major cash flow problems which in extreme cases can lead to the failure of your business.
Pictured: Ed Molyneux
Pictured: Ed Molyneux
“But our research shows that many UK micro-business owners face real problems when it comes to getting paid on time. We also found that many micro-business owners are waiting for months before they chase an unpaid invoice, and that’s really too long.
“We know that it can be awkward to chase clients and ask them for money, but if you don’t follow up with late payers from the moment that their invoice is overdue, they may not see the urgency in paying you. And that means you may be stuck waiting for months – or in extreme cases even years – to get paid what you’re owed.
“So instead of worrying about having that awkward conversation with a client, make sure you chase your overdue invoices quickly. Either make chasing invoices a strategic part of your weekly accounting or invest in the right tools or software that will do it automatically for you. Otherwise you run the risk of missing out on what you’re owed and your business may suffer.”
FreeAgent says the results demonstrate the need for its multi award-winning cloud accounting system among the UK micro-business sector – as the software includes the ability to set up automatic reminder emails that are sent to clients when invoices are overdue – and the value of the business to investors interested in its crowdfunding drive.
This latest report comes after FreeAgent revealed that micro-businesses are potentially in danger of becoming undervalued and underpaid since nearly two in three (63%) micro business owners don’t track or record any of their time – while just 8% of owners said that they track all of their time.
The firm says that, for every hour billed by micro businesses, they will on average work an additional 30 minutes of time that they could – but don’t – bill their clients for.
FreeAgent estimates that this could amount to an additional £218 million a week or £11.4 billion a year in unbilled hours across the UK micro-business sector.
The survey carried out by YouGov also showed that a third (34%) of respondents claim to have felt overwhelmed by their business accounting, which includes financial reporting, invoicing and payroll.
The study also found that nearly a quarter (23%) of micro-business owners personally spend more than one full working day every month on their business accounting while nearly one in 10 (8%) spend at least three full working days on them.
FreeAgent says that this extra time equates to around 2.4 million unnecessary days spent on accounting per month across the whole of the UK’s micro-business sector.
Molyneux added: “The UK’s small and micro-business sector is the lifeblood of our economy and needs all the support it can get. At times it can be a struggle to survive and our research reveals the extent to which these businesses are going the extra mile often without being paid.
“From our own internal data, we’ve discovered that for every hour a micro-business works and bills their clients for, they will on average work an additional 30 minutes that they could – but don’t – charge for. That’s a third of a typical micro-business owner’s time where they’re essentially working for free – which UK-wide adds up to hundreds of millions of pounds worth of lost earnings.
“But that’s just the picture for those people who are actually recording their time in the first place. Our YouGov poll found that almost two thirds of respondents didn’t actually track any of their working time, so that potentially means that millions of UK micro-business owners don’t know how valuable their time is or how profitably they’re using it.
“The reality is that, although many micro-business owners work hard for their clients, they also spend long hours doing business-related tasks that they don’t get paid for – and that includes managing, and sometimes feeling overwhelmed by, their accounts.”