Study: UK micros write off £9 billion in unpaid invoices every year

It’s a new fiscal year, and that means tying up the loose ends on last year in accounting terms. For me, and for many others, this meant writing off a handful of invoices as unpayable and unrecoverable. The total due for each invoice was barely worth chasing (or, apparently, paying) and the sum total was a low three figures. But with my other half only just coming out of long-term unemployment, that seemingly small amount was literally food on the table.

I was hardly surprised, then, to learn that UK freelancers and microbusinesses write off an average of £1,800 per year each in unpaid invoices. That’s the findings of a study conducted by FreeAgent, the Edinburgh-based providers of awesome accounting software. That is up to £9 billion in unpaid labour – and up to £800 million in unpaid taxes – being flushed down the toilet every year.

When you go into self-employment, you agree to redefine much of what counts as “normal” in your life. Understanding that you will simply never be paid for a portion of the work you do is part of that understanding. That doesn’t make it right. With 96% of businesses in the UK qualifying as microbusinesses, our acceptance of nonpayment as “normal” is a form of mass cognitive dissonance.

But what rights do you have legally? There is some help available to you known as the Late Payment of Commercial Debts (Interest) Act 1998. This law allows you to recover the unpaid debts as well as any costs you incur, such as lost time, in chasing them up. What’s more, you have the legal right to charge interest on the debt.

However, As FreeAgent founder Ed Molyneux pointed out in a podcast interview, invoking the legislation available to you isn’t that easy when you are a one-man-band. There is very little chance that the nonpaying client will pay up, and every chance that they will simply take their business elsewhere. I also know firsthand how blacklisting is alive and well: speaking up about problems with a contracted client can make your inbox go very quiet. So what else can you do?

FreeAgent suggests checking the creditworthiness of new customers, but again, this is not so easy when you are a micro working for a micro. There is a voluntary agreement scheme known as the Prompt Payment Code where signatories agree to pay invoices on time. However, I have a rather kneejerk reaction to pledge schemes: if you have to be told to pay invoices on time, I’m going to look at you with raised eyebrows. Likewise, if you like to make a public boast about the fact that you have signed a pledge to pay invoices on time, I’m going to avoid you altogether.

The easiest thing you can do to protect yourself is to set forth payment terms which are crystal clear in your contracts, invoices, and T&Cs. Software like FreeAgent will let you automate late payment reminders, and you can even customise the text of the emails from friendly to fierce.

Outside of software and laws, you should also decide that poor answers, evasions, and excuses simply aren’t good enough. Payments by cheques, accounting staff away on jollies, and volunteers who do the finances one day a month are not valid reasons for you and your family to suffer. With nine billion pounds of work going down the drain, it’s time to get bitchy.

About the author

Heather Burns is a digital law specialist in Glasgow, Scotland. She researches, writes, publishes, consults, and speaks extensively on internet laws and policies which affect the crafts of web design and development. She has been designing and developing web sites since 1997 and has been a professional web site designer since 2007. She holds a postgraduate certification in internet law and policy from the University of Strathclyde. Learn about hiring Heather to write, speak, or consult.