Paying out invoices to contractors or freelancers can be extremely time consuming for businesses that rely on manual processes. Firms must not only confirm that charges are legitimate and that invoiced work was delivered, but also process them and send out payments. That can be particularly challenging for companies that work with larger teams of freelancers.
Technology has advanced over the past decade, however, and so have freelancers’ expectations for businesses to approve invoices and make payments in less time. Companies that cannot provide these speedy experiences are unlikely to maintain good relationships with individual contractors for long, especially in a post-pandemic world. The spread of the COVID-19 virus and the ensuing economic downfall has changed freelancers’ priorities. Digital invoices and seamless payments have gone from a nice perk to a financial necessity for many freelancers as they find themselves out of work and needing to jump on new sources of income. Enabling such seamless experiences was already becoming critical prior to the pandemic as approximately 35 percent of U.S. workers were then freelancing in some capacity. The ongoing crisis has highlighted the gap between firms that can send payments to workers on time and those that cannot.
The following Deep Dive explores how slow, paper-based invoices can cause financial frictions, both for freelancers and the companies with which they work, as well as how automation and advanced learning tools such as artificial intelligence (AI) may be able to help. The Deep Dive also analyzes how the COVID-19 pandemic has impacted freelancers’ circumstances and what those changes could mean for future payment developments.
The Late Invoice Ripple Effect
Approving invoices is just the first step to paying freelancers, and paper-based processes can bog down the entire payments experience. Chasing down delayed invoice payments has long been frustrating for gig workers: 55 percent of U.K.-based gig workers reported in a 2019 study that they had not received funds for work they had completed. The same study found that 41 percent of companies hiring these workers paid late when they did send money. These practices put full-time gig workers in tough positions, as they could either spend valuable hours prodding companies to send late payments or look for opportunities to find work with firms that will hopefully have quicker turnarounds. Either choice can lead them to forfeit short-term funds and make them less likely to work with those same companies in the future.
COVID-19’s spread has highlighted just how impactful slow invoices can be for these workers. Seven out of 10 global gig workers have had to deal with clients either paying late or not paying at all and the pandemic has raised the stakes by drying up new sources of income. Earnings among gig workers are declining across the board: The amount gig workers in the U.K. took home fell by 2.9 percent on average between February and March. These individuals are likely to be even less tolerant of invoice-processing delays as the pandemic continues because a significant share are relying on timely payments to make it through. Not receiving timely payments affects gig workers’ abilities to pay their own bills on time.
Figuring out ways to quickly get payments to these freelancers should thus be a priority for the companies that utilize their services, and not only because doing so will help these individuals relieve financial pressures during the pandemic. It will also help businesses attract top talent.
Automation Strengthens Freelancer Relationships
Companies can integrate several features into their accounts payable (AP) processes that help deliver fast and secure invoicing and payments, and third-party accounting tools or even mobile apps can make these processes more transparent. One of most intriguing and versatile technologies firms can use is invoice automation, which can help eliminate the tedium associated with accepting, reviewing and manually approving myriad invoices.
Freelancers may experience immediate benefits from companies that utilize these technologies, as they are able to receive their payments more quickly as well as keep track of their progress more easily. This is essential in an environment where the bulk of businesses are working remotely.
Firms that are still relying on paper-based invoices are in a bind, since it is much more difficult to approve such documents in the midst of stay-at-home or quarantine orders without digital technologies. It is important to consider automation for the future as ad hoc workers are beginning to expect more speed and security.
Freelancers are gravitating toward firms that can provide them with innovative experiences, especially since digital tools can provide more financial security long-term and send quicker payments now. Invoice automation can also help freelancers file taxes, for example, as more transparent documents reduce the struggle of calculating yearly income. It would also help them seek unemployment benefits as part of
the CARES Act, as applications often require an income summary.
Automating even part of this process can save both freelancers and firms crucial money and time, and resources are critical during the pandemic. Companies should also consider how freelancers’ attitudes surrounding invoicing may have changed. Gig workers are unlikely to want to work with firms that kept them waiting, after all, and will most likely gravitate toward new businesses that will pay them quickly and without fuss. Businesses should be prepared for this future and plan accordingly.