I just read Elizabeth Dwoskin’s New York Times article on the challenges freelancers can face in getting paid. It is tough to read because she profiles two stories where non-payment causes significant personal hardship. In one case, Romulo Saldana collected $34k in IOU’s for back pay over the course of five years working in construction. So, with $34k less to spend, he made hard choices. He wasn’t able to send money home to pay for his teenage daughter’s middle school or pay for a caretaker for his 90 year-old father.
Historically, we’ve talked a lot about how OnForce’s innovative model helps buyers deliver high quality services at substantial cost savings vs. alternatives. It’s a great value proposition that allows service buyers to pay for IT or CE work 1 hour or 1 job at a time anywhere in the US or Canada with whatever skill set is required…. but it only works because there is a two-sided value proposition. If service providers aren’t excited about the value OnForce brings then the service buyer value would disintegrate. Both sides have to work.
So, what does this have to do with Elizabeth’s article? Well, while I was reading I couldn’t help but think about the benefits OnForce delivers to our service providers. There are three that are top of mind:
- OnForce guarantees payment to service providers. Elizabeth highlights how hard it can be to get paid and in the end, smart contractors have to price non-payment risk into their work.
- OnForce pays fast. Because of OnForce’s innovative model payments get delivered fast – this quarter we’re averaging 52 hours after completion of the work order. I know lots of small businesses that dream of getting paid in 52 days.
- When problems do occur and a payment gets delayed, OnForce has a team of people focused on getting to resolution quickly. Our platform software is very effective at making almost all transactions happen without incident, but sometimes, we need to intervene. Often a service buyer needs a part returned or some other follow up before they can release payment.
Really, the issue of non-payment or late payment is huge. It’s not just an unscrupulous business owner here or there – from what I’ve seen, that’s the small part of the issue. There are real economic issues that make payment issues common.
- Cash Flow: Obviously, this economy has exacerbated the issues with many businesses struggling for cash flow. The business you are contracting with is probably struggling with cash flow because some of the companies they are doing work with are slow to pay them. Even though they might be making a good margin, and have a theoretically healthy business, they can still run into real dry spells when it comes to cash. Another surprising reason for cash flow problems is growth. Winning new business is great, but it often requires up front investment that doesn’t pay back right away. Too much success in the form of new business can cause real cash flow problems.
- Bandwidth: Tied to the issue above we’ve seen companies working to make due with fewer employees. Too many companies had to lay people off in the last couple of years and this makes them hesitant to build up a big workforce again. One thing we see is an over-stressed accounts payable function that can often lose track of a stray invoice that needs paying.
- Lack of organization: Small businesses are often started by entrepreneurs who are excited about their business, not the drudgery of the finances of their business. I’ve visited many small businesses where the owner was a brilliant carpenter/ trucker/ technician/ lawyer… but upon inspecting the mechanics of the business I found complete disarray.
For all of these reasons, good people at good companies struggle to pay on time. The ability for an individual to set out on their own and create a business is an essential part of our economy and only getting more important. These payment issues are a drag on productivity that will continue to hinder our economy. It’s fun working at a company that is building an innovative product that makes a difference on an important problem for so many independent contractors out there.