The freelance economy is witnessing rapid growth in participation worldwide. One recent report found that 57 million freelancers are expected to operate in the U.S. in 2021, while additional research reveals that ad hoc workers already contribute $1 trillion to the nation’s economy. The freelance market is also expanding in Europe, with one study indicating that gig economy workers conduct approximately 20 percent to 30 percent of all jobs in the region.
These freelancers are searching for work inside and outside their native countries, taking advantage of the ad hoc economy’s inherent flexibility to find opportunities and expand their professional networks. Thirteen percent of U.K. freelancers claimed they were seeking jobs in other markets, for example. Businesses also appear to be ramping up their hiring of these professionals, with 80 percent of U.S. companies stating that they currently rely on a mix of freelance and full-time workers. Eighty percent of large-scale U.S. businesses plan to expand their use of freelancers in the next few years.
However, this continued growth is resulting in several challenges, especially when it comes to how freelancers are finding work — and being paid for it. More and more of these workers want to be paid in their local currencies and they also expect these payments to be finalized swiftly. This represents an opportunity for businesses looking to expand their working relationships with freelancers or contractors, but these firms must first enhance the payment mechanisms they are using to deliver funds to these workers. Eighty-five percent of freelancers would pick up even more work if they were paid faster, but only 17 percent of companies reported having the infrastructure necessary to enable such transactions. Late payments can also be financially devastating to freelancers during the ongoing health crisis — and to businesses finding it challenging to balance their own cash flows while juggling delays in payments — even though the pandemic is expected to boost gig economy participation.
These expectations are prompting businesses that want to retain or grow their freelancer relationships to conduct the complex currency conversions and other cross-border payments compliance aspects far faster than they traditionally have. The following Deep Dive analyzes how the ongoing pandemic and the increasing availability of digital and instant payment methods are shifting freelancers’ payment expectations globally. It also examines how outdated and slower payment methods are becoming more frustrating for freelancers and companies themselves and how businesses can adopt new technologies to satisfy these workers’ demands and retain and expand their working relationships with independent contractors and freelancers.
Freelance Flexibility And Cross-border Payments
Workers have long cited flexibility as one of the freelancing lifestyle’s top benefits as they can choose which new projects to take on and which tools they use. Freelancing was also inherently remote and virtual, even before the start of the pandemic, with 83 percent of freelancers working from home.
The flexibility freelancers value often fails to manifest in their payments experiences, however. Wire transfers are a common method through which these workers receive cross-border payments and these payments can present numerous problems, even if they go smoothly. Wire transfers require sensitive banking and personal information from freelancers that could compromise their details or increase the risk of fraud, and most rely on major currencies such as the euro, the British pound or the U.S. dollar. This can cause wrinkles for freelancers who want to claim funds in their local currencies, especially if the conversion costs fall to them.
Even freelancers who have branched out from wire transfers — including those who are eyeing digital or mobile payment apps that support cross-border payments — struggle with attached costs. Seventeen percent of freelancers in one recent report lost up to 20 percent of their earned funds to payment mechanisms, for example. U.K. ad hoc workers in a separate study reported that they lose roughly 10 percent of their incomes in fees when they accept credit card payments.
Delayed payments compound these issues, and 29 percent of all freelancers’ invoices are paid late. Most ad hoc workers have struggled with delayed or even missing payments as 71 percent of these workers claim they have worked with clients that have paid them either late or not at all. The lack of flexibility, transparency and speed concerning cross-border payments may ultimately be taking a greater toll on freelancers’ financial health during the pandemic, even though job opportunities have expanded in recent months. Late payments can also rapidly strain freelancers’ trust in partnering companies and result in problems with retention for businesses. One recent study found that nearly half of ad hoc workers reported that their current payment relationships with online marketplaces could be improved, for example, and 73 percent of these individuals notably said that they would abandon these marketplaces.
Businesses that want to expand the number of freelancers or contractors they are using must take careful note of how payment troubles could affect their abilities to entice and retain ad hoc workers. Finding payment solutions that can address freelancers’ unique cross-border payments challenges is the next step for the businesses that employ them.
Faster Payments And The Global Economy
Adding flexibility to freelancers’ payments requires businesses to first reexamine their current methods. Many firms utilize internal payment processes involving at least some manual procedures, relying on employees to wade through invoices and other documents to finalize transactions. Other companies still fail to support payments in local currencies despite ad hoc workers’ increased demands for them to do so, which could strain their working relationships.
These problems existed before the pandemic but have grown only more challenging since its onset. However, many businesses are looking to mitigate these issues with 85 percent of company leaders stating that their businesses already supported real-time payments or planned to by 2023. Most real-time payment networks are being developed for domestic use, however, meaning it will take several years before they can adequately handle cross-border payment volumes. Implementing automation or partnering with third-party payment providers could also ease some of these companies’ cross-border strains, especially as the pandemic adds frictions to the traditional methods on which these firms rely.
Companies must quickly analyze their freelance payment strategies as the world becomes more digital and connected in response to recent events. Freelancers are coming to occupy a crucial role in the global economy, and ensuring that they can receive their payments quickly, seamlessly and in their desired currencies is of the utmost importance for the companies that rely on their services.