Why It’s Important to Pay Freelancers On-Time (and How to Do It).
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22 May 2018 / freelance management

Why It’s Important to Pay Freelancers On-Time (and How to Do It).

For anyone who has ever freelanced, or worked with freelancers, it should come as no surprise that their top complaints have to do with payments: slow payments, late payments, forgotten payments, no transparency about the timing of payments. 44 percent of freelancers report issues getting paid, and on average, freelancers are owed over $10,000 in unpaid invoices and spend 36 hours tracking down missing payments, according to data from the Freelancers Union

The issue (usually) doesn’t stem from deliberate intent on the employers’ part. The issue is that most companies don’t have the payment infrastructure in place to pay freelancers in a timely, efficient way. Despite the fact that there are around 53 million freelancers in America, who could soon represent 50 percent of the U.S. workforce, businesses still rely on payment systems designed for full-time employees and third-party vendors, not freelancers. This creates problems.

 

Traditional Payment Systems

 Traditional accounts payable (AP) systems are built for employees that experience payment events on a regular cycle—weekly, biweekly, monthly, etc. Regardless of whether they earn an hourly wage or an annual salary, AP systems are set up to make payments on a consistent basis. Freelancers, in contrast, tend to perform task-based work. For example, a copywriter may write eight blog posts a month for a client, a video producer may work with a different client each week, or a web designer may complete a specific task and invoice when they are done. There’s no consistency or standardization, as one company may pay freelancers differently depending on the nature of the work. 

Without a dedicated freelance payment strategy or a larger freelance management system, businesses usually end up paying freelancers on the same terms as they pay outside, third-party vendors, which is to say on Net 30, 60, or even 90-day terms. This isn’t a great solution because freelancers don’t work in the same way as these types of vendors. Asking someone who is self-employed to wait many months to get paid is unreasonable and unfair. How do they pay their rent in the meantime?

Interested in learning more about keeping your freelancers happy? Check out our blog post
Why Treating Your Freelancers Right Matters

Payments Today

Centralized AP systems are not set up to deal with rapid, high volume, task-based work of freelance economy, and this hurts companies as well as freelancers. Due to the lack of standardization and processes in place, the admin overhead for 100 freelancers is an average of nine hours for the finance team member designated to deal with those queries. High volumes of freelance invoices can take more administrative work to process than an AP system requires for a much larger full-time payment workforce. And even with all that work, the potential for error is huge. If each category of freelancer gets paid in a different way through a different contact, there are so many opportunities for an invoice to get lost in the cracks or a mistake to derail how and when an invoice is processed.

Hiring managers who don’t want to onboard freelancers quickly and who want to get freelancers paid on time, are increasingly seeking out interim solutions. A whole industry of backdoor transactions has emerged to bridge the gaps in traditional payment systems. This might mean an employer pays a freelancer with a company credit card or via PayPal, and while fast, this creates tax and compliance nightmares.

So, to review:

Relying on conventional payment methods for freelancers is expensive and resource-intensive, ridden with errors, and exposes companies to tax liability. It also creates a horrible experience for freelancers, who have to way far too long to paid and spend their valuable time hustling to make sure invoices are on track. No-one benefits from this arrangement, which is why businesses need to think seriously about adopting a dedicated freelance payment solution.

Adopting a Modern Freelance Payment Solution

There are a number of things to consider when mulling over how to pay freelancers. The first is, does the solution have processes in place for onboarding? Onboarding sets the tone for the entire financial relationship. Businesses need automated tools for generating the appropriate contracts and tax documents as soon as a freelancer is hired. All those documents, along with personal information like social security numbers and bank account information, should be stored centrally and securely. Having all the information saved in one place smooths the payment process and prepares companies for inquiries from the IRS.  

Visibility and Transparency

Visibility and transparency are also key. Companies need insight into how much they are spending on freelancers, which is not easy if every team is tracking their spending differently (or not tracking it at all) and the payments are spread out across various systems. A freelance payment solution should serve as the single source of truth for all freelance payments, which enables businesses to keep a better grip on their bottom line. Closely tracking payments also makes it easier to identify compliance red flags, such as if a freelancer has made over a certain threshold. It’s way too time intensive to do this manually, but important for minimizing liability.

For freelancers, visibility and transparency into payments provide peace of mind because they can check the status of invoices for themselves. This has the added benefit of reducing administrative overhead. A 100 person freelancer workforce can generate up to 75 requests regarding invoices a week. Fielding these queries is time and labor intensive, with customer support teams dedicating hundreds of hours to answering tickets. A freelance payment solution reduces the support burden and keeps freelancers in the loop.

Pay Faster 

Most of all, a freelance payment solution makes prompt payments possible. Collecting the onboarding documents and then automating, standardizing, and streamlining how invoices get processed—not to mention getting rid of net-30—means freelancers can get paid within days, not months. A business who builds a reputation as a timely payer will be more competitive when it comes to attracting freelance talent. Moreover, a dedicated freelance payment strategy gives companies more flexibility to engage freelancers at scale, creating a more agile workforce overall. At Kalo we've found an integrated approach to payments, tied closely to an overall freelancer management system   like Kalo, works best. New to a freelance management platform? Explore our page, What is a Freelance Management System to see if it's right for you company.


To learn more about how to supercharge your workforce with better, faster, stronger freelance payments, check out this comprehensive guide from Kalo.

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Ron Toledo

Ron Toledo

Head of Marketing at Kalo

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