Sooner or later, most freelancers will have trouble getting paid. According to Freelancers Union—which represents over 276,000 freelancers—44 percent of their members reported issues getting paid last year. They also reported being owed over $10,000 in unpaid invoices on average, and having to spend an average of 36 hours tracking down missing payments.
Freelancers Union’s new #FreelanceIsntFree campaign has been attempting to shed some light on these issues, but new businesses are also arising to try to meet the needs of freelancers.
Several new ventures—including Just Tell Julie, Tesorio, and Fundbox—purport to provide solutions for freelancers with payment and cash flow issues. Though the three may not get at the root of the payment issue, they just might help bring that 44 percent down to more sustainable levels.
Just Tell Julie
Some freelancers who would rather chew off their own limb than phone a client about a late payment—the process, after all, can be a huge time-sink, and an intimidating one at that. Julie Elster, founder of Just Tell Julie, wants to provide these freelancers with some muscle.
The business started when her then-fiancé (now husband) had trouble getting paid for contract work, so she began making calls. As word of her skills spread, the collection calls blossomed into a full-fledged business.
Payment conversations can be awkward for many freelancers, but they don’t bother Elster. “It’s not my money,” she said, “so I’m not emotionally tied to this. I worked in finance so I’d talk to people about money all day.”
Elster charges an upfront fee of $49 (which includes her forthcoming book on preventing overdue invoices), and if she’s able to collect money for you, she charges an additional 15 percent commission or $50, whichever is higher.
For two weeks, she’ll make persistent calls and, if necessary, send emails to whoever is on the hook. “If I can get them on the phone, the chances of me collecting are very high,” Elster said. “It’s easier to delete an invoice than ignore you on the phone.” (If you want to make your own follow-up calls, Elster offers these tips on her blog.)
But does it make sense for freelancers to outsource this process? It depends.
“If somebody’s super shy about following up or they find themselves too busy to follow up, you’ve really got to do the math on whether it’s worth it or not,” said Jake Poinier, founder and writer at DoctorFreelance.com and author of The Smooth-Sailing Freelancer. “Is this a better solution than going to collections? Absolutely. If you get to collections, you’ve really put yourself in a bad situation.”
In fact, Elster positions herself as the friendly alternative to a collections agency. Rather than alienating a client with an aggressive approach, Elster aims to maintain “the relationship with the client and get them to actually pay invoices.”
Thirty- or 60-day waits for payment are the bane of freelancers everywhere. Tesorio wants to quicken this process by providing incentives for businesses to get their payments out faster and easier.
For a small discount, vendors and freelancers get as much as 99.5 percent of their invoice as soon as it’s approved by the client. For instance, you could get $199 on a $200 invoice a few weeks earlier than the normal waiting period, or wait the usual payment cycle for the full amount. The service is free for freelancers, and Tesorio takes a percentage of the discount from every transaction.
Founder and CEO Carlos Vega’s experience owning a factoring company (where the company buys the invoice at a discount and takes care of collections for you) inspired the creation of Tesorio.
“By using technology to make everything more transparent, we thought we could bring the cost of the early payment down to a fair financial cost,” Vega said. “Every night we get an update of the invoices that are approved. We notify the suppliers that your invoice was approved, and you can get paid now.”
Getting real-time notifications on an invoice should appeal to any freelancer who’s had an invoice “get lost” or sit in limbo for months.
If you’re strapped for cash or just hate the concept of net 90, then this model could be enticing. However, Tesorio’s utility is relatively limited because of a small client base. (The company is currently in talks with publishing companies; current clients include Drexel University, Yards Brewing Company, and the University of Pennsylvania.) Freelancers can only use it to expedite payments from clients who are already signed up with Tesorio, though that client base should expand in the future.
Poinier said he previously worked at a publishing company that paid all vendors within seven days because it had worked out its own discounts for doing so. Not all companies can operate this way—many make money by holding invoices for 60 or 90 days before paying them, which may hinder Tesorio’s future growth. After all, companies that don’t pay right away can earn interest or use the money in other ways to generate revenue before they pay vendors—or they simply may not have the money to pay immediately. If a company is wedded to longer pay cycles for any of these reasons, then using Tesorio likely wouldn’t be an attractive option.
Of course, if you’re working with a client that doesn’t use Tesorio, “there’s nothing that stops freelancers from offering a discount for being paid quickly,” Poinier points out. Ultimately, though, working with a “middleman” like Tesorio may be more comfortable for everyone involved.
Unlike Tesorio and Just Tell Julie, which try to ensure you actually get paid, FundBox lets you access money you’re supposed to get paid sooner through a credit-based system. You can advance invoices between $250 and $30,000, which you then repay with fees over the course of 12 weeks.
“Instead of filling out tons of paperwork, pulling a personal credit score, and dealing with a bank, Fundbox is able to quickly underwrite a business based on the data in their accounting system,” explained Jordan McAvoy, Fundbox’s vice president of marketing. “Fundbox allows a freelancer to quickly receive advances on their outstanding invoices.”
Currently, the company’s software integrates with QuickBooks, Xero, FreshBooks, Clio, Harvest, Wave, and InvoiceASAP, and is adding new integrations as well.
While the process sounds relatively simple, there are potential pitfalls. If a client’s payment doesn’t come through, the freelancer has to repay the amount advanced plus clearing fees. As McAvoy put it, “Our customer is still responsible for managing their relationship with their customer.”
According to the pricing slider on FundBox’s website, the total fees to clear a $5,000 invoice range from $243 to $343 (which breaks down to $5 to 10 in transaction fees; the rest are advance fees). If you repay the loan ahead of schedule, the remaining fees are waived.
If you truly need the money for a one-time cash flow problem, and don’t have access to low or no interest credit from other sources, then Fundbox may make sense. But just as people who rely on payday loans sometime wind up in a vicious cycle of living paycheck to paycheck, perpetually advancing invoices could get you into trouble.
The bottom line
While these business models attempt to help mitigate some of the issues with slow or no pay, they’re more reactive than proactive approaches.
“Stuff like slow payment and no payment need to be solved at the front end as opposed to the back end,” said Poinier. “Set the parameters of the deal and make sure you know who you’re dealing with.”
Having a solid contract and ongoing communications with clients should reduce some of these headaches. Poinier has had two clients file for bankruptcy (one paid him two years later, one paid only half the outstanding invoice), so in some situations, even goods contracts and communication won’t protect you.
That’s why it’s so critical to have a diversified client base and maintain a cash cushion just in case.
“You should never put yourself in a position where a check is critical,” Poinier said. “The smart thing is to position yourself in a place where you’re not having to do those types of things.”
Of course, not every freelancer has that luxury.