The Freelancers Union recently published a study on the affect of nonpayment to freelancers on the economy and to business in general. The report concluded:
"Late and nonpayment is one of the top challenges facing the independent workforce today. These workers are at greater risk
of nonpayment than traditional workers, but the law does not reflect this reality. The current way that independent workers must deal with nonpayment is inequitable, time wasting, damaging to one’s finances and harmful to the economy. Instead of having to deal with nonpaying clients on their own, freelancers should have access to worker protections similar to those extended to traditional employees. These workers comprise one-third of the U.S. Workforce; they deserve protections suitable to such a significant part of the economy."
Having been a freelancer for a couple of decades I can relate, but the report missed one thing. If you wonder why the rates are so high for freelancers, this is the primary reason. What you are getting charged for freelance work is already, generally lower than what you would pay a full time employee, based on 40 hour work weeks, benefits, insurance, equipment, office space, etc., but the hourly and project rates you pay are also making up for the losses the freelancers take on one out of three projects. Yes, that's right. The report states that as much as a third of their income is lost through nonpayment.
In the past 20 years, my business has racked up $180,000 in unpaid invoices, or the equivalent of three years of work. I even had a client stiff me on $13,500 after promising to pay me the next day. I went to their offices the next day and found the place emptied and later learned that they had packed up in the middle of the night and went back to China, leaving millions of dollars in unpaid bills and payroll that were unrecoverable.
The report states that construction firms were the worst offenders in this area, either by late payments or nonpayment at 82 percent. The electronics and software industries are close behind in my experience, however, with 3 of 4 either paying 90 days late if at all.
The benefits of being your own boss are being able to set your own hours, work where you like, and always being able to choose the most interesting work to do. But the next time you are hiring an agency or a freelancer and are ticked off that they are demanding a retainer or lawyer-evle hourly rates, keep in mind that you are on the receiving end of a practice that your company may have encouraged.