It’s about time we all got Paid

Let me tell you about my journey from lawyer and investment banker, to startup fintech COO. With some time as a freelancer, mostly chasing invoices, in between…

For someone who had spent their entire working career in a stable, salaried job, the move to freelance work came as quite a shock.

It sounds ridiculous, but I found asking for payment for my hard work incredibly awkward. It certainly didn’t come naturally. A typical client interaction around payment might go a little something like this:

Me: “Hi Client A. Please find my invoice for XYZ attached. This is payable within 28 days. Looking forward to seeing you soon etc.”

Client A: [No response]

Me, 30 days later to myself: “That payment from Client A, that I have been relying on, has not in fact reached my account… I’m sure there must be some sort of issue with the bank. I’ll just wait a couple of days and reshuffle my direct debits and bills for now and try not to panic while I wait for it to arrive… I feel a bit embarrassed chasing them.”

Me 40 days later to Client A: “Hi, I know you’re really busy etc., but no payment has been received for the work I did [now over two months ago]. Just checking everything is OK and there isn’t a problem?”

Client A: “Oh, we’re sorry we forgot/missed that email/the accounts person is on holiday/what was it for again? Now we’ve missed our monthly pay run, you’ll be paid in our next pay run in about 30 days.”

Me, worried about future work to Client A: “Oh right, never mind, thanks so much.”

Me to myself: “Oh s**t. How am I going to pay this month’s rent?”

Or is it just me?

I did a bit of digging and realised I wasn’t alone. According to Experian, the majority of freelancers worry about the balance between asking for overdue payments, and the desire to get repeat work from clients.

The more time I spent with my own clients (ironically I was a business advisor for SMEs), the clearer it became that the single biggest factor hindering their growth was the impact of managing cash flow as a result of delayed payments. It’s unpleasant, it’s stressful and it’s the quickest way to suffocate a business. And it seems like it’s affecting everyone in an unending cycle.

In fact, the FSB reports that 50,000 small businesses a year go bust due to late payments, with a third of all payments to small businesses coming in late, costing the UK economy about £2.5bn a year.

In practice, for a sole trader/small business this has:

1. A REAL cost, with about 37% of small businesses running into cash-flow problems, and 30% resorting to overdrafts.

2. An OPPORTUNITY cost, with a third of businesses spending on average 1.2 days a month chasing payments (when they could be out doing profitable work), as well as deferring growth due to cash-flow uncertainty.

3. An INTANGIBLE cost — it isn’t just about cash flow. Chasing payments has a negative impact on mental health, with over half of business owners reported as suffering from anxiety and depression due to late payments. Its impact is not only felt within the business, but affects the overall wellbeing of business owners and staff both in and out of work. One could argue the ripple effect of late-payment-induced stress is also felt by family members and those close to the business.

It seemed to me that there had to be a solution that addressed all three problems, namely the cash flow, time and associated stress.

There are already a number of solutions focussing on solving the cash-flow issue. For anyone who has worked in a big corporate, invoice finance may seem the obvious solution. However, invoice finance isn’t readily available to freelancers and small businesses, and is actually really just a loan. Business/personal loans, overdrafts and credit cards are all expensive options for a business owner and none of these solutions remove the issue of collecting the debt, or worrying about being paid.

What about insurance? Invoice insurance is an invaluable tool to protect against a client’s insolvency or inability to pay, with companies like Hokodo and Nimbla leading the charge. The drawback is that you still have to try to collect the debt from the client before you can claim, so it doesn’t really solve the immediate cash-flow issue.

I found nothing that could provide a viable solution to the very real, daily problem being faced by freelancers and small businesses of getting paid. It’s something I have experienced first hand and feel passionately, in this day and age, should be solvable.

Enter Paid, stage right

It seemed like fate when I began working with Techstars and was introduced to Tom Howsam of Paid. Tom had been a freelancer and a microbusiness owner — his first business almost went bust due to a client insolvency and late payments so he understood intimately the challenges of getting paid by clients.

Tom also understood that a complete solution would look at not only solving the problem for the supplier, but also facilitating the payment by the client/buyer side.

That is why Paid’s focus is on solving the difficulties on both sides of the supplier-client relationship, offering a platform that automates onboarding, contracting, invoicing and payment for both the buyer and the supplier side; with the opportunity for the supplier to also get paid immediately upon completion of work, for a one-off fee (c.7.5%, although this fluctuates depending on your client’s creditworthiness).

This benefits the buyer through an easy-to-use platform for their small suppliers and allows a supplier to grow their business without the constraints of worrying about, or chasing, payment.

It was a no-brainer to hitch my wagon to Tom’s rising star, and I joined as COO of Paid in June this year.

If you can relate to any of the problems I’ve been talking about, I’d love to hear from you! Get in touch with me at natasha@paid.co.uk.