Freelancers lose hundreds of pounds each year giving clients free credit despite late payment crackdown
Learn how to no longer be a victim of the late payment culture in the freelance economy and gain hundreds of pounds back each year
The UK government’s new “toughest crackdown on late payments in a generation” has highlighted a long-standing truth: freelancers have been forced to act as unpaid banks and offer free credit lines for their clients for far too long.
Prime Minister Keir Starmer’s announcement of maximum 60-day payment terms – dropping to 45 days within five years – and mandatory interest on overdue invoices represents what industry bodies and commentators are calling a “landmark moment” for the self-employed.
The hidden cost of free credit
When freelancers wait 45 days to be paid for work completed immediately, they’re essentially providing an interest-free loan to their clients. For a typical freelancer earning £40,000 annually, waiting 45 days instead of being paid within a week costs them approximately £370 in lost interest earnings. That’s money that could be earning returns in savings accounts or investments.
“Late payments can force freelancers out of business, but obscenely long payment terms for work can put just as much of a strain on the self-employed,” said Vicks Rodwell, Managing Director at IPSE, the UK’s self-employed trade body.
Still think it’s OK? Here’s some more math to see the point.
A freelancer completing £5,000 worth of work and waiting 45 days for payment is providing a free loan worth around £46 in interest at current rates. Multiply this across multiple projects, and freelancers are losing hundreds of pounds annually.
The real cost of playing bank
Seb Maley, CEO of tax insurance provider Qdos, which supports over 100,000 small business owners, described the situation bluntly: “Late payment has been the elephant in the room for years. There have been countless promises to crack down on it, but legislatively speaking, very little has been done to stop it from happening again and again.”
The new rules recognise that freelancers shouldn’t be expected to shoulder the financial burden of their clients’ cash flow management. As Starmer put it: “From builders and electricians to freelance designers and manufacturers—too many hardworking people are being forced to spend precious hours chasing payments instead of doing what they do best – growing their businesses.”
Gareth Thomas was appointed Parliamentary Under Secretary of State (Minister for Services, Small Businesses and Exports) at the Department for Business and Trade on 9 July 2024. He was elected as the MP for Harrow West in July 2024. Here’s what he had to say about the latest developments:
I want the UK to be the best place in the world to start a business, grow and succeed – and that’s why we’ve taken bold steps today.
“Too many small firms go under each year because they aren’t paid on time – that is completely unacceptable.
I hear all too often about businesses who just don’t have the cash needed to start up or grow. Today, we’ve announced measures as part of our Plan for Change to tackle all of those issues and beyond. This is the government listening to businesses, working with them, and delivering real change.
Examples of smart credit terms for freelancers
Rather than accepting lengthy payment terms created not by you but by your clients, freelancers should consider offering structured credit options with appropriate interest rates:
- 5 Working Days Payment: Standard rate – no additional charges
- 10 Working Days Payment: 1% surcharge on invoice total
- 15 Working Days Payment: 2% surcharge on invoice total
- 30 Working Days Payment: 3.5% surcharge on invoice total
These rates reflect the cost of providing credit, including lost investment opportunities, administrative burden, and cash flow impact.
Can legislative changes level the playing field for freelancers?
The government’s new proposals include several measures:
- Maximum payment terms capped at 60 days, reducing to 45 days
- Mandatory interest on late payments that clients cannot opt out of contractually
- 30-day dispute deadlines to prevent delaying tactics
- Fines for persistent late payers – companies paying over 25% of invoices late within six months face penalties
“It’s not right that freelancers can fall behind on their own bills – or even into debt – while their clients sit on money for months at a time,” Rodwell added.
Stop acting like your clients are doing you a favour
The new mandatory interest system means freelancers won’t have to play “bad cop” when chasing payments. The law automatically applies interest, removing the awkward negotiation around additional charges.
However, industry experts, such as Matthew Knight of Freelancing Support warn that getting clients to actually pay interest remains challenging. The expanded powers for the Small Business Commissioner to issue fines and name persistent offenders should help enforcement.
Freelancers must stop providing credit for FREE
Maley welcomed the changes as recognition that “Westminster understands one of the biggest issues the UK’s smallest businesses face day in day out.”
For this systematic mentality about enabling companies to pay freelancers late, freelancers, for now, must take matters into their own hands. How? Stop providing free banking services to clients. Your skills and time have value – and so does your money. The government’s crackdown finally provides the legal framework to ensure you’re paid properly for both your work and any credit you extend.
The consultation on these proposals was still open at the time of writing, giving freelancers a chance to shape the final rules. It’s an opportunity to ensure the new system works for those who’ve been subsidising big business cash flow for far too long.
How to Raise an Enquiry Regarding Late Payments to OSBC
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