True story: the first $400 I ever failed to collect freelancing as a solo lawyer was for work I did for my friend’s father’s friend. When I took the gig, I could not imagine that these people would not pay. After all, it’s my friend’s father’s friend! Alas, I did the work. And the money never arrived after many calls, emails, and even a terse Facebook chat or two.
When I started Indepayment, I set out to quantify exactly how much is owed to freelancers and independent workers. I needed that number for Indepayment’s business plan, but I was also just sort of interested in whether I was one of a few unlucky freelancers, or one of many. Turns out I was not alone. Not by a mile.
In in a 2009 survey of 3,000 independent workers by the Freelancers' Union, seventy-seven percent (77%) of freelancers reported having trouble collecting on invoices at some point while working independently, while in 2011 alone, forty-four percent (44%) of freelancers were unable to collect on invoices. The average freelancer was unable to collect $4,643. The problem is national in scope, but William M. Rogers, a professor of economics at Rutgers University, found that in 2009 in New York State alone, 120,733 freelancers were unable to collect $965,015,072 in payments. The report assumed 13.5% of independent workers were unpaid annually and the average unpaid invoice was $7,993. In addition, the report found that in New York State alone in 2009 there were $2.3 billion in late payments to freelancers.
We don’t have a lot of good information about whether these numbers have gone up or down in the last six years, but with the growth of the freelance workforce, it’s a pretty good bet it increased. Based on a very conservative estimate that there are 10 million freelancers in the U.S., Indepayment’s research indicates that 1.3 million U.S. freelancers are shorted about $2.5 billion each year in business-to-business invoices, which is what Indepayment specializes in collecting. My $400 was a fraction of a drop in the bucket. Cold comfort.
Why does this happen? After all, there are so many resources out there that aim to help freelancers and independent workers avoid non-paying clients. Whole books in fact. Not to mention our collective guts. The most obvious reason freelancers get screwed is that freelancers are not like banks or credit cards. Banks (supposedly) and credit cards (definitely) loan money out based primarily on the credit worthiness of the borrower. Freelancers and independent workers, on the other hand, are not taking gigs based on the collectability of the invoice. We’re taking gigs because we have a connection to the client, we think the work is interesting, or we just need a gig. That’s not going to change, although Indepayment’s IndeScore lets you assess in the risk of not being paid before you take the client, which is a start.
The second reason we freelancers have such a collection problem is that we lack the infrastructure to collect. Banks, credit card companies, and just about any other creditor (hospitals, utilities, and landlords) have a whole industry build around the collection of debts owed to them. Freelancers, independent workers and small businesses? Not so much. Indepayment aims to change that by giving freelancers, independent workers and, eventually, small business, access to sound debt collection infrastructure, on our terms.
I’ll let you know when Indepayment collects from friend’s father’s friend.
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