Many freelancers fear one thing, it’s not getting paid for their work.
It is heart-aching to pour your sweat, blood, tears and time into a big project, only to not get paid for it in the end!
But this doesn’t have to be a nightmare—there are ways to help ensure your clients duly pay up for your services.
And one such solution is by using an escrow service.
Let’s dive in!
What is escrow service?
When providing an escrow service, a third-party will temporarily hold funds that one party is to pay to another. The escrow provider will release the funds to the recipient only after certain conditions have been met.
For example, let’s say that a client wants to engage you for a freelance copywriting project. You quote the client $1,000, to be paid after successful completion of the project, and the client agrees.
If you aren’t using an escrow service, the client will pay you only after the project has been completed. However, if the client is a shady one, they may disappear after you have delivered the work—cheating you out of $1,000 for your hard work.
What if an escrow service had been used instead?
If so, the client will put $1,000 with an escrow provider before you start work. The $1,000 will be released to you only after the client has received your deliverables.
In other words, while you are working on the client’s project, you and the client can’t touch that money unless the project is cancelled, and escrow funds will be refunded to them
When you have completed the project, the client will approve payment, and the escrow provider will release the $1,000 to you.
And that’s how an escrow service works, in a nutshell!
Also, instead of releasing full payment to freelancers only after the entire project has completed, escrow providers may also be able to release partial payments based on project milestones. This is especially useful for larger projects with multiple deliverables.
Pros and cons of using an escrow service
Escrow service ensures that you’ll be paid for your efforts once project has been completed!
This is even if the client ghosts you—it is not uncommon for escrow providers to automatically release the funds to you if the client hasn’t done so within an agreed number of days after you have submitted your work.
That said, a disadvantage of using an escrow service is that it usually isn’t a free service. Escrow providers often charge a service fee that’s pegged to a percentage of the funds they’re helping you to hold. Separately, payment processing fees may also apply.
As an example, escrow provider Escrow.com charges a 3.25% service fee and a 3.05% payment processing fee for holding funds of up to US$5,000.
However, you can negotiate with your client to decide who should pay such fees. For example, these fees can be fully paid by either you or the client, or split between both parties.
But even if you end up being the one to foot the escrow bill, this can be a small price to pay in exchange for peace of mind that you will be paid for your work!
List of escrow services that freelancers can use
Many freelance job websites that provide a platform for freelancers and clients to connect and communicate with each other also offer escrow services.
For example, Gigworks partners with a third-party payment provider to receive the clients’ payments upfront. It then holds these funds while the freelancer is working on the client’s order.
Once project has been completed, Gigworks will release the funds to the freelancer. Funds that have been approved for release are directly deposited into freelancers’ bank accounts at the end of each month.
Gigworks fees are based on the total amount that a freelancer has earned on the platform each month. This ranges from a 12% fee for monthly incomes below US$300, to a 5% fee for monthly incomes of US$1,000 or higher.
What are some options other than escrow services?
Despite the advantages of escrow services, you may have reasons for not wanting to use them. That’s totally fine! How can you make sure that you still get paid then?
One option is to require your client to make payment before you start work, in full. If the client doesn’t pay you, you don’t get started. It’s that simple!
It helps to include all your payment terms in a contract. This way, you can ensure that you and your client are on the same page with regard to payment—and that you get their agreement to pay any extra fees they may incur along the way, such as urgent fees or late fees.
To share more about these topics, I’m launching a course called Painless Freelance Payments. This is a 6-module, 15-lesson course where I’ll cover issues such as:
- How to include your payment terms in a contract
- How to issue invoices that help you get paid
- What to do if a client doesn’t pay you
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Fueled by a long-standing interest in media, Siew Ann ventured into digital marketing while in law school and has not looked back since. Being inspired by the struggles that she and others have faced while freelancing in Singapore, Siew Ann started lancerX to help freelancers turn their craft into sustainable and meaningful full-time businesses.