The sole trader experience

We are thrilled to have put in a bid for the Banking Competition Remedies (BCR) Capability and Innovation fund, designed to improve the financial products and services available to small businesses alongside Fractal, which is reinventing SME financial services.

Together we are partnering to create SMART (SMEs Manage Accounts Receivables and Tax) to help sole traders, who makeup 60% of UK small-medium-sized-enterprises (SMEs) and are key drivers to the UK economy. We believe that we can save 50,000 businesses a year, as well as decrease the average outstanding debt to SMEs by 29%, saving the economy £1 billion per year.

Due to the pandemic and subsequent lockdown, sole traders have been hit hardest. According to the Institute for Fiscal Studies, one-fifth of self-employed sole traders don’t survive past one year, and the majority don’t survive past the five-year mark.

Now, as the economy begins to open up, they are dealing with months of lost income, have to make decisions on deferring payments, apply for government loans or use their savings to keep their business, or themselves afloat.

Even before the economic repercussions of the lockdown, sole traders struggled with cash flow, tax payments and often had to dip into their overdrafts to make up for late payments – a prevalent issue pre-COVID. Sole traders relied on that income to support their costs, and on average, were owed £6,142 due to late payments.

The SMART tool will help sole traders easily invoice customers, and allow them to incentivise early payment through discounts, or issue penalties for late payments. SMART also anticipates costs such as tax payments to help sole traders better manage their cash flow.

Although it’s easy for us to talk about the great aspects of SMART, we thought we would put it to the test and spoke to three sole traders about how our tool would help them run their business.

Ollie Brown is co-founder, and CEO at Wodco, a London company designing result-focused products to help clients grow their businesses.

Ollie tells us: “It’s difficult to invoice clients, and in this current market, it’s become even harder to chase everyone up. If I had an app like SMART to incentivise my clients to pay their invoice payments by using discounts and penalties, I feel that there’s a greater chance to receive payments that I would have otherwise have gotten late. It means that there’s a better chance of me accessing money that is owed to me to pay bills and use on my business, than looking at external means of funding. Also, as you say the app automates tax calculations in real-time and files my paperwork directly to HMRC, that will save me a lot of time as it’s not something I enjoy doing, and I envision that many other small businesses/sole traders feel the same way as soon as they hear the word tax.”

Ife Fakoya is a full-time London-based Financial Analyst, working part-time as a sole trader. Ife produces a weekly podcast series called The Black Ladder Podcast where she speaks to black professionals about their views on careers and society.

Ife anticipates that she will face certain hurdles with payments and cash management once her business grows. She tells us, “the question of sponsorship is always a difficult one. Sometimes I create an episode and want to release it on Tuesday but the sponsor does not provide payment on time even though I have already agreed to include their product in the episode. Moreover, sometimes I spend time on an episode and edit in the sponsorship content, just to then have to wait or chase a sponsor who hasn’t replied or paid me. This is especially difficult when the sponsorship content relates to the specific episode I am producing e.g a food sponsorship for the day I interview a chef. I also pay my editor every time I release an episode, if this was an automated process it would be much easier.”

When asked if she would use the SMART payment tool to help her with her business she told us “Yes I would, it would mean I don’t feel like I am pestering the customer (podcast sponsor). I find it awkward asking people for money even if it’s what I am owed. If this was more automated it would feel like it’s from a business partner and not myself. It would also mean that I don’t ruin the relationship with customers due to petty money arguments. It would certainly also help me with my tax, as this is something I am not very well-rehearsed in.”

Our third sole trader is Beth Calverley, founder of The Poetry Machine.

Beth is an established poet and creative coach who crafts poems on demand, live at events. She also runs group sessions that help people to express themselves and feel connected to one another.

As a sole trader, she faces similar issues to the others. If a client doesn’t pay she needs to dip into her savings to cover the expenses. She also has a rule that there should not be more than one outstanding invoice with one client at any time. “It can take a while for payments to be processed, especially when working with larger organisations. Freelancers spend an average of 20 days per year chasing late payments – particularly younger creative freelancers.”

She believes the SMART payment tool would work well for her to manage her taxes. She tells us: “Keeping on top of tax payments with the SMART payment tool would help. Anything that brings down admin is helpful, especially at a time when my focus is staying creative and strengthening my online poetry practice.”

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We welcome any feedback, questions and clarifications. If you are a sole trader who would like to tell us about your experiences, or a financial institution, government body or policymaker who would like to collaborate with us, then please email us at team@untied.io. To find out more about the SMART initiative, our partnership with Fractal, or if you are interested in partnering with us then drop us a line to partners@untied.io.

You can see more from Fractal over at their blog, with our shared press release here.

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