Independent contractors sit somewhere along the spectrum between consumer and small business owner.
As one-person operations, they often lack the resources and know-how to manage professional finances in a compliant and efficient way, yet they have more complex tax, payments and cash flow management needs than the average individual.
Unfortunately, independent contractors have also frequently been left out of the picture for traditional banks and even newer FinTechs despite the recent influx of small business cloud accounting apps and other B2B FinTech platforms.
For independent contractors, that can mean going it alone to manage finances, often without any experience in finance or accounting.
Dan Hogan, chief financial officer and chief operating officer of newly-launched U.K.-based Ember, told PYMNTS in a recent interview that beyond the technological and workflow challenges managing financial admin, one of the most complicated hurdles for independent contractors is simply understanding some of the more technical accounting terms.
He pointed to Ember’s Co-founder and CEO, Aaron Shaw, an IT engineer who struggled with financial administrative processes as a contractor.
“He just found the accounting jargon and the technical speak of accountants made no sense to him whatsoever,” said Hogan.
Easing The User Experience
For small business owners, the solution to this dilemma is typically to adopt one of several cloud-based accounting portals. But Hogan noted that these tools are often designed not for the small business owner, but for their accountant, rendering them too complex for independent contractors alone. Outsourcing operations to an accountant, meanwhile, is costly and still requires contractors to manage a significant burden of managing payables, categorizing expenses and the like.
Like consumer-facing platforms, Hogan said the user experience is key to addressing the challenge of enabling independent contractors to manage their own financial admin, including taxes, invoice payments, accounts receivable and cash management.
That means cutting out the jargon.
“There’s no such thing as a debit or a credit, or accounts payable or accounts receivable,” he said of Ember’s approach to the market. “We call those things what they are. Accounts payable is the money you owe your suppliers. Accounts receivable is the money you’re owed from clients.”
“Removing that technical jargon means that a business owner doesn’t have to skill-up in the accounting or finance space,” he added.
Open Banking’s Impact
With Shaw having experience as a contractor, and Hogan a chartered accountant, the co-founders sought to find that middle ground between consumer and small business for user experience and functionality to fit what these professionals need. According to Hogan, the U.K.’s open banking framework is an essential component to easing friction for end-users.
“To be honest, we wouldn’t be in existence without open banking,” he said. “What it’s done is really lowered the barrier to entry.”
Managing invoices — both in terms of receiving payments on outstanding invoices and making payments on the bills received — is one area that has been particularly impacted by open banking opportunities.
Today, Ember is authorized as an account information service provider (AISP), enabling the platform to loop into users’ bank account data to automate reporting and analytics capabilities. The FinTech is also in the process of obtaining a license as a payment initiation service provider (PISP), which would enable the company to initiate payments under the open banking framework.
This capability means efficient accounts receivable processes, enabling users’ own clients to pay their invoices using only an email. On the accounts payable side, explained Hogan, open banking prevents users from having to toggle between their FinTech apps and banking portals to make a payment, a process that can be cumbersome and expose a user to manual data entry errors — and is “a real frustration with current accounting systems,” he said.
Easing The Volatility
“It’s been really tough for them, unfortunately,” he said. “If you look at the current landscape, a lot of companies are looking to protect their cash flows, which means contractors are generally some of the first to be considered for being let go.”
Further, he added, contractors don’t qualify for all of the U.K. government’s small business relief funding schemes.
It’s too early to tell what impact COVID-19 will have on the independent contracting community. Some professionals left without work may shift into the relative stability of becoming an employee. On the other hand, some employees that have been furloughed may step into the world of independent contracting to make ends meet.
Whatever the case, Hogan emphasized the importance of enabling these professionals to cut expenses and get a stronger hold of their finances without forcing them to spend significant amounts on outsourced accountants or complex accounting portals designed for larger businesses.
“It’s now more paramount than ever for them to really manage their costs,” he said.