Getting paid as an independent worker
It’s not as easy as it looks when you’re a freelancer
Being your own boss is amazing. You get to pick your coworkers. You get to pick your clients. You get to slip out for 2 p.m. manicures.
That said, there are plenty of challenges. We’ll tackle the benefits issue elsewhere (who really needs health insurance or a 401K anyway?), but today, I want to focus on the issue of non-payment.
What is non-payment? Basically, it’s a customer stiffing you on the bill. The equivalent of devouring a steak, two bottles of wine, and dessert then ducking out of the restaurant. Obviously, society has made it totally socially unacceptable to do this at a restaurant. But to an independent contractor? Fair game.
There are two issues when it comes to getting clients to pay as an independent worker: getting the client to pay on-time and getting the client to pay at all.
In business, cash is king. Businesses want to hold onto as much cash for as long as possible. This means that the person in the business arrangement who has bargaining power will mandate payment terms that maximize their cash reserves. Large clients of independent workers will offer borderline abusive payment terms of 90 days. Imagine investing your own money to complete a project upfront, then not getting paid for three months!
A commonly under looked perpetrator of this “pass the buck” payment policy is media companies leveraging freelance journalists for content, especially as they reduce the size of their full-time foreign correspondent base. Several of my freelance journalist friends in Nairobi covered the wars in Sudan and Somalia. This is an incredibly expensive feat: flights and hotels are expensive given the need for high-end security and most people hire body guards to ensure their personal security in these conflict zones. The bill for a week’s worth of reporting will easily exceed $1,000. Each trip will produce a few stories that will be sold basically at cost ($300 a piece) to publications including Al Jazeera, BBC, Foreign Policy, and The New York Times.
These publications will then wait three months to pay the freelancer and not compensate them for anytime the story is republished by a third-party site. Given the low prices for freelance work and long payment timelines, freelancer journalists will often be forced to be idle for months, while they wait for the publications to issue payments, not having extensive savings to fund their next mission. In other words, borderline-broke freelance journalists are extending zero-interest loans to the world’s leading media brands.
Publications’ long payment terms have negative consequences beyond low bank account balances. Given that most freelancers have their cash tied up in receivables, many often skimp on security costs, rather than sit idle waiting for their deposits to arrive. They stay in budget accommodation with less gate security, opt for a 4x4 rather than armored car, and hire one rather than two fixers.
71 journalists were killed in 2017, the majority of them freelancers. Compare this to one journalist killed in 1997. Brave storytellers like Ali Nur Siad-Ahmed and Abdulkadir Mohamed Abdulle, killed in a car trip in Somalia, and Edgar Daniel Esqueda Castro, killed by gunshot in Mexico, and Christopher Allen, killed in crossfire between government and rebel forces in South Sudan, risk their lives while publications like Voice of America, Vox Populi, and Al Jazeera withheld payment. The cheapness of media outlets is literally costing those nobly pursuing the world’s untold stories their lives.
While an extreme example, aggressive payment terms in favor of clients rather than independent contractors negatively affects the cash flow of nearly every small business in the world. A study by Bonsai showed that over 30% of small business invoices are paid late. Late payment is more pronounced in women-run businesses and when the invoices are larger. Invoices over $10,000 are paid late more than half of the time.
I am sure you’re thinking, “Surely there is some recourse if clients don’t pay?” Running a small business in Kenya, I felt like I had none. Even today, I am owed $7,000 from clients who went dark, claimed they lacked the funds, or keep promising me “next month.” Obviously this is wrong, especially given that when they engaged in my services they knew the price they would need to pay. I met my obligation, and they were satisfied with the world. But with limited cash reserves, they would rather pay their employees and landlord than someone who completed a project. The only recourse I have is regular calls to pester them and the threat of going public, which makes neither of us look good.
“Surely the US has greater protections?” you wonder. Not really. Your first option is small claims court Technically, yes. But it costs $30 for claims under $1,500, $50 for claims between $1,500 and $5,000, and $75 for claims over $5,000. If you file more than 12 cases a year, it’s $100 per filing, independent of legal fees. If you win in small claims court, all that means is that you are added to this list of debtors who may be able to collect only when the party you filed against files for bankruptcy. In other words, it is a lot of time and energy away from your core business for a hypothetical, distant payout.
The second option is that you hire a debt collection agency. These are old-school agencies that charge you up to 20 to 50 percent of cash collected. So, again, small business owners are literally paying for the shady practices of clients.
Ultimately, I think the solution needs to be around stricter penalties for non-payment and legal maximums around the length of payment terms. Another option is for freelancers to name and shame bad actors, so that other freelancers know who to avoid or how to structure payment terms (e.g., demand a deposit upfront, or segment payments across multiple deliverables). As more and more people become self-employed, we will increasingly have to confront the abuse of non or delayed payment to freelancers.
