September 6, 2018 Cash Flow en_US New research from QuickBooks reveals cash flow problems affect many small business and self-employed workers in the U.S. Discover what causes cash flow problems and how business owners and freelancers are solving them. New report reveals cash flow struggles of small businesses and self-employed
Cash Flow

New report reveals cash flow struggles of small businesses and self-employed

By Danielle Higley September 6, 2018

For small business owners and the self-employed, few things are more important than getting paid. Part of this stems from tight margins; part comes from a smaller client base, which means fewer cash flow channels. When a client fails to pay on time or not at all, the financial fallout can be devastating—a challenge big box stores don’t often encounter.

That’s why it’s so important small business owners and self-employed workers have resources and plans in place to reduce the chances of not getting paid. But collecting payment quickly and accurately isn’t always easy. In fact, it’s the No. 1 challenge for self-employed workers.

Two recent surveys by QuickBooks of 500 self-employed workers and 400 small business owners looked into why collecting payment can be so difficult.* These survey results reveal some of the biggest struggles self-employed workers and business owners face when getting paid.

Late payments create cash flow issues

Late payments have a huge impact on a business owner’s ability to accomplish their goals, and unfortunately, such behavior is a common problem for both business owners and self-employed workers. Only 41% of business owners and self-employed workers say they’ve never received late payments. According to 8% of self-employed workers and 4% of business owners, half or more of their payments are late.

How often do your clients/customers miss payment deadlines?


Interestingly, the most likely culprits for those late payments are larger clients and those referred by other clients or customers. Well over half (60%) of self-employed workers and 59% of business owners say their larger clients typically don’t pay on time. Business owners also reported that new clients or customers are less likely to pay on time. Friends and family tended to be the most reliable, as you might expect, with 61% of business owners agreeing they always pay on time.

These insights are important, because they may be the key to solving a common problem business owners face: figuring out which clients to take on and which ones to let go. When forced to prioritize some clients above others, professionals would do well to first satisfy their smaller, longstanding clients.

Which clients/customers are least likely to pay small businesses on time?

pay small businesses on time

Which clients/customers are least likely to pay self-employed workers on time?


The good news is 40% of business owners report a delay of three weeks or fewer when payments are delayed. The bad news is the majority of business owners who receive late payments get them a month or more after the payment was due. One in 10 business owners has waited a year or more to be paid for an item or service.

What is the longest small businesses have waited for payments?


Late payments have the potential to negatively impact self-employed workers in a big way. Over a quarter (30%) said late payments have prevented them from paying their own bills and have caused significant stress. Nearly a quarter have lost sleep over missed payments, and 22% said it has prevented them from expanding their businesses. Some workers (5%) said they’ve had to sell their house because of a late payment.

What impact do late payments have on self-employed workers?

self-employed workers

Clients and customers often refuse to pay

Customers have a number of reasons for not paying their bills on time. Sometimes they don’t have the money; other times, they’ve just misplaced the invoice and forgotten about it. But refusing to pay up at all? That actually happens more often than people might realize. According to survey respondents, 14% of self-employed workers and 10% of business owners have this happen to them every week.

More than half of self-employed workers and business owners said they’ve had to deal with clients and customers who’ve refused to pay. Less than half (35%) of self-employed workers and 37% of small business owners said they’ve dealt with this issue at least once a month.

How often do your customers/clients refuse to pay you for your work?

refuse to pay

Knowing when to send out invoices could mean the difference between getting paid late or getting paid on time. More than half (51%) of business owners said the best time to send an invoice was upon delivery or completion, and they might be right. Those who chose this option were the least likely to have customers and clients refuse to pay. Nearly half (44%) of them said they have never had a payment refusal.

Why Businesses Aren’t Getting Paid and What They Can Do About It

Attempting to better understand what might cause a customer to pay late or not at all, QuickBooks used part of its survey to ask business owners and self-employed workers about their preferred forms of payment, their incentive programs for encouraging on-time payments, and their own self-sabotaging habits.

The point of this research was to try to better understand the potential contributors to this painful outcome of late or nonexistent payments, and to uncover a few options business owners may not have considered for achieving a better response. But how much control do business owners or self-employed workers have over when they get paid? And when it comes to possible solutions, do the benefits always outweigh the costs?

Are small businesses accepting the correct forms of payment?

In the digital age, it’s no surprise businesses need to be ready to take multiple types of payments, from cash in hand to mobile app transfers. What might come as a surprise, however, is the most commonly accepted forms of payment are cash and checks. In fact, checks are just as commonly accepted by businesses owners as credit or debit cards. But do customers really want to pay with a check?

How do small business clients/customers typically like to pay?

According to the survey results, the answer is no. Or at least, not as often as they’d prefer to pay with a debit or credit card.The point here isn’t that business owners should stop accepting checks—provided they still find value in offering this method of payment to customers. Instead, the goal is to help business owners better examine their own customer trends and decide for themselves if all the forms of payment they currently accept should be accepted. Are they leaving money on the table by not accepting a type of payment they hadn’t yet considered? Check out the data for yourself.

What kinds of payments do small businesses accept?

kind of payments

What kinds of payments do self-employed workers accept?

kind of payments

When making a decision about what kinds of payments to accept, business owners must weigh the pros and cons of each payment form. Taking credit or debit cards, for instance, can cost businesses between $35 and $40 a month, plus processing or transaction fees and flat fees. But if 38% of customers prefer to pay with credit or debit cards, can you really afford not to offer this service?

Most business owners would likely assume the most cost-effective method of payment is cash, but according to a 2006 study of 500 merchants commissioned by the Bank of Canada, that’s not entirely true.

The survey asked merchants about their perceptions of payment, then set forth to prove or disprove those perceptions, based on estimated threshold transaction values and potential risks or weaknesses. When looking at cash payments, for instance, the study considered everything from human error to robbery to the time spent preparing registers and ordering coins.

The Bank of Canada study used an average transaction value of $36.50 and looked at businesses of all different sizes and industries. They found debit cards, not cash, had the lowest variable costs, at 19¢. This was followed by cash at 25¢, and credit cards at 82¢. The report states, “Debit cards are the cheapest because the flat transaction fee is relatively low, while cash is more expensive because of the labor costs and the deposit fees (accounting for nearly 70% of total cash costs). Credit cards stand out as the most costly overall because of the relatively high processing fee.”

What tricks are self-employed workers using to encourage on-time payments?

Despite the frequency of late payments and the issues they cause, self-employed workers don’t send many payment reminders. Less than 30% say they send more than one payment reminder, and 41% say they don’t send reminders at all.

The majority (76%) of those who don’t send payment reminders say they don’t need to. They have other ways of dealing with payment issues. Here are some of their most common tactics.

Have self-employed workers used any of the following?


It’s interesting that 1 in 5 self-employed workers has gone so far as to hire a debt collection agency, pursue a lawsuit, or put a lien on a project to get paid. Of these, a lien is the most affordable method, as the costs involved are mere filing fees. Debt collection agencies, on the other hand, typically take a sizeable percentage of the debt or have a fee structure in place, based on how many delinquent accounts must be recovered. Finally, pursuing a full-blown lawsuit is likely the most expensive option, where even the most cut-and-dry case can rack up thousands, if not tens of thousands, of dollars in attorney fees.

There’s a common saying: An ounce of prevention is worth a pound of cure. If so few business owners are taking steps to incentivize clients to pay on time, whether through advance payments, discounts for early payments, or automated payment reminders, perhaps it makes sense so many have struggled in the past to get paid on time. Offering clients the option to pay in installments while the project is underway, then giving them a good deal for their trouble is certainly a better solution than chasing them down later.

Undercharging is common practice among the self-employed

Undercharging is a common problem for self-employed workers. Nearly 80% said they do it, and 25% said they always or frequently do so. Understandably, it can be a bit frustrating when a client doesn’t pay on time or even at all when the amount on the invoice was actually less than what should have billed in the first place.

While the most common reason self-employed workers undercharge is to reward loyal clients, nearly 1 in 5 said they deliberately undercharge to get the work, which can prove dangerous later when that client becomes a regular who is used to receiving that reduced rate.

When self-employed workers undercharge, why do they do it?


One way self-employed workers can help themselves is to better understand how long a project is going to take and what resources will be needed, prior to giving an estimate. This might sound like common sense, but according to survey data, nearly 1 in 4 workers have been underpaid because they miscalculated the size of a job.

So how do hard-working professionals know what they’re worth? That’s easy: job costing.

The strategy behind job costing is simple: Track and record everything, then use past work to make accurate estimates for future work. Say you’re an illustrator for children’s books. Someone wants you to do a new project, but they want to know what it’ll cost them. If you’ve tracked your time on other children’s books, you might have a good idea of how many hours you expect to take on the initial drawings. Knowing new clients typically ask for an average of four revisions, and each revision takes a certain number of hours, you’d want to add that time to your estimate as well. Finally, you’d tally up your typical cost of goods, like paper, new pencils, and cups of coffee. The sum cost of your hourly rate, plus the resources you’ll use to create the work, is how much you should propose.

Job costing, in essence, is just that. It might sound intimidating, but so many people make the mistake of not doing it, thinking they’ll remember later how much time another project took. Better to keep all that information in one place to refer back to later than guess wrong and lose money on what could have been a profitable project.

Financial Well-Being Means Holistic Money Management

Understandably, money is important to small business owners and self-employed workers alike. But financial woes don’t end with getting underpaid or even paid late. Sometimes those struggles are a clear result of poor budgeting or expense management. In an effort to better understand how business owners manage their books, QuickBooks asked survey participants about what parts of the business were most important, what role technology played in their business, and how likely they were to rely on automation.

Business owners value bookkeeping over accounting

When asked to rate different aspects of their business from most important to least important, 22% of business owners chose bookkeeping as the most important aspect of their business. That’s double the number of people who said marketing was the most important factor.

In contrast, bookkeeping had the most votes for which factor was least important, with nearly 1 in 3 respondents ranking it last. That said, 1 in 5 respondents did say accounting was the most important area of their business.

Please rank the following in order of importance for your business (high = 1 to low = 7):


Business owners value technology in all areas of their business

Across the board, 1 in 3 business owners reported using some kind of technology in every financial-facing area of their business, from payroll to accounting. As the processes turned to more human-facing rolls, however, such as HR and administration, businesses appeared to rely on technology less and less.

Do you use technology (e.g. apps or software) to help you with any of the following?


Interestingly, according to survey results, only 1 in 4 businesses use technology for timekeeping, suggesting many business owners are still relying on paper timesheets to track their time. A practice that’s both inefficient and expensive.

Some of this could be reflective of the fact people are more used to financial software and feel more confident relying on a product to check their math than crunching numbers at the kitchen table by hand.

Breaking those numbers down further, research tells us young entrepreneurs view their financial experts differently. Understanding such nuances may help accountants and bookkeepers alike better understand how to appeal to certain age groups.

For instance, in a recent survey of 500 self-employed workers, QuickBooks Time found 50% of self-employed taxpayers over the age of 55 viewed their accountant as an essential business advisor, while only 27% of those under 55 said the same. Surprisingly, younger self-employed workers were less inclined to use a tax software than their older counterparts. While 42% of self-employed workers aged 55 and older felt comfortable filing online or through another tax software option, only 33% of taxpayers aged 18–24 said the same. Younger taxpayers were also more likely (but only by 1%) to file on paper.

Small business owners are beginning to embrace automation

The majority of business owners have started to embrace automation. Over half (51%) of respondents said their operations are somewhat automated, while 30% said their businesses are highly automated.

The 19% who said they had yet to automate their operations seemed to think they were too small to do so or thought a lack of knowledge or funds was keeping them from automating their operations successfully.

How well-automated are your business operations?


Why do you not use more automation in your business operations?


Most self-employed workers aren’t too stressed

Despite not receiving a regular paycheck, and occasionally dealing with the fallout of late payments, most self-employed workers feel at peace with their career path, or at least less stressed than people might expect.

When asked about their level of stress, 23% of self-employed workers said they weren’t stressed at all, and nearly 50% said they had a healthy level of stress. That isn’t to say all self-employed workers feel relaxed about their current position. More than a quarter reported having an unhealthy level of stress, which could be more or less linked to their finances.

How self-employed workers describe their level of stress


Nevertheless, when asked about their future plans, only 3% said they definitely wouldn’t be self-employed in the next five years, while nearly half said they definitely would be self-employed.

What do you self-employed workers see themselves doing in five years’ time?


Key takeaways

Getting paid late or not at all can have a substantial impact on small business owners and self-employed workers alike. It can prevent them from living comfortably, and prompt such consequences as having to borrow money or even sell their home to cover their expenses.

Bigger clients are more reliable than smaller clients, which makes a lot of sense, given larger clients often feel the impact of each transaction much less and therefore don’t push back or postpone their payments as often. In contrast, friends and family commonly give business owners grief by paying late, taking advantage of those familial ties.

In the end, most small business owners and self-employed workers may never be assured a regular paycheck, but neither will they have many of the common stressors of those employed in a 9 to 5 by somebody else. And judging by the number of self-employed workers who plan on staying right where they’re at for the foreseeable future, these entrepreneurial souls wouldn’t have it any other way.



*In June 2018, QuickBooks commissioned an independent survey of 500 freelance/self-employed workers in the U.S. and 400 business owners in the U.S. to learn more about their challenges with cash flow and payments. QuickBooks welcomes the re-use of this data under the terms of the Creative Commons Attribution License 4.0, which permits unrestricted use, distribution, and reproduction in any medium, provided the original source is cited with attribution to

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Danielle Higley is a copywriter for TSheets by QuickBooks, a time tracking and scheduling solution. She’s been a contributor to, FiveThirtyEight, and a variety of HR and business blogs where she can put her affinity for long-form storytelling to best use. Read more