• New data reveals that 74% of small and medium-sized businesses see the benefits of using freelance or contract workers – allowing them to address the skills gaps without investing in a permanent headcount. 
• Yet Sonovate’s ‘Future World of Work’ report reveals that almost a third (31%) of small and medium-sized businesses routinely fail to pay freelancers on time.
• This is holding business owners back with almost half (48%) of contractors saying they refuse to continue to work for a company which doesn’t pay on time.
• Finding better ways to finance the future world of work is vital for the health of business and the growing number of freelance or contract workers.
• Embedded finance solutions can help companies access finance to scale and pay their workers easily, and on time.

Small and medium-sized businesses (SMEs) are more willing than ever before to hire freelancers and contactors but lack the necessary financial infrastructure to confidently and routinely pay them in full and on time.

Based on a survey of 4,500 people, including 500 small and medium-sized business leaders, a new Future World of Work report from embedded finance provider Sonovate, reveals that while freelance and contract work is on the rise post-pandemic, nearly a third of small and medium-sized businesses (31%) consistently pay their freelancers and contractors late. Half of freelancers surveyed (51%) said these late payments have impacted their ability to pay their own bills on time.

While almost three-quarters (74%) of SME decision-makers said they recognise the benefits of hiring freelance or contract workers for specialist support over having to invest in a permanent workforce, more than a third (34%) of them said they are holding off hiring the freelance or contract workers they need because they are worried about paying them.

The research shows that although 44% of SMEs have changed their funding and accounting structures to accommodate a significant increase in the number of people who work for them on a part-time, freelance or contract basis, over a third (38%) admitted their cash flow isn’t set up to handle the continual payment of freelancers and that their infrastructure does not meet the need for prompt payment services.

Subsequently, more than two in five SMEs (44%) rarely pay their freelancers before the last day on which payment is due. Almost half of freelancers (48%) refuse to continue to work with businesses that are late to pay them and 56% would only work with businesses that have a proven track record for managing their contingent staff well and paying them on time. Over half of businesses (53%) agree that it is unrealistic to expect contractors and freelancers to wait up to 30 days to be paid – that they ought to be paid sooner.

Richard Prime, co-founder and co-CEO at Sonovate said: “As freelance and contract working booms, so too does the number of businesses that require ‘made to measure’ funding that’s available on-demand, embedded at the point of need and forever switched on so they can manage their cash flow and meet the need for prompt payment services. Businesses that lack this financial infrastructure will undoubtedly miss out on talented workers who will only work with companies with a proven track record of paying on time. This is where there is a need for tech-driven finance to help businesses unlock working capital and ensure their workers get paid when they should.”

The report also combines qualitative interviews from business founders, CEOs, investors, policy-makers and opinion formers from across the fintech, financial services, tech, consultancy and recruitment sectors.

Writing in the report, Sam O’Connor, CEO of Coconut, a bookkeeping and tax app for sole-traders, says: “Companies must take responsibility for paying freelancers quickly and reliably. I believe there’s a need for businesses to honour invoice terms and even pay invoices in advance, valuing freelancers as the fruitful, powerful resource that they are and respecting that they often do not have time to chase on invoices and lack the extra money to support late payments.”

John Paul Caffery, founder and CEO of RAMP Global, a technology platform that helps employers manage their staffing agencies, adds: “Fintech platforms are a prime example of providing technology-led, not service-driven, access to finance. They can be easily accessed and managed internally. This goes for both small businesses and larger enterprises: there’s a lot of points where finance can be plugged in - e-procurement platforms, directly into their supply chain, and vendor management systems.”

Embedded finance enables non-financial service companies to seamlessly integrate financial services into their business model through APIs. To date, Sonovate alone has provided over £2 billion of on-demand funding, enabling more than 3,000 businesses in over 40 countries to grow and ensuring 30,000 independent workers get paid.