Elance - Escrow Services, Work Tracking Systems and Payment Guarantees
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Recognizing the inherent trust problem associated with online freelancing, Elance offers a pair of systems designed to make it easier for clients and contractors who don’t know each other to work together. The Elance escrow system is designed for fixed rate jobs, and allows clients to put money aside before work is done so contractors can feel assured they will be paid. Work View is intended for hourly jobs, letting clients keep track of work done by contractors and providing a guarantee to workers that they will be paid.
Elance does not require the use of escrow on fixed rate projects, but strongly recommends it. New project listings default to the use of escrow; a client must specifically deselect this option if he or she does not want to use the feature. However, even when the client does not select escrow for the project, a contractor may request it as part of his/her proposal. Clients can reject a proposal asking for escrow if they really don’t want to use it, but if they accept such a bid, they must agree to use the escrow service.
The operation of the escrow system is fairly standard in most respects. When a client awards an escrow project to a contractor, the funding of escrow for the project (or the first milestone for larger projects) must be performed as part of the negotiation of terms for the contract. Elance instructs contractors not to begin work until they receive notification that escrow has been funded.
Once escrow is funded, the contractor does the work, and sends deliverables to the client for review. When the deliverables are accepted, the contractor sends an escrow release request to the client; once approved, this tells Elance to give the escrowed funds to the contractor.
The vast majority of fixed rate projects use escrow, and in fact, many contractors consider it a “red flag” for a client to refuse escrow on a project. There’s good reason for concern here, but don’t assume that every client who doesn’t want to use escrow is a scammer. In my time on Elance I encountered a number of solid, well-established clients who didn’t like using it for a variety of reasons. If the client has enough of a payment track record, you may be okay proceeding without escrow—but be careful!
Escrow works well in most circumstances, though there are a couple of potential gotchas that contractors must look out for. One is that sometimes new clients do not have funds immediately available for escrow at the start of a project; in this case, Elance notifies the contractor that the escrow funding process has been initiated, and follows up later when the escrow funding is done. Some providers mistakenly confuse the two messages and think escrow funding is complete when it is only in progress, and so begin work before they should.
Another issue has to do with changes in terms and milestones. If the client submits a modification to the terms that involve a change in payment values, the Elance system by default will issue a refund of money that has already been escrowed. This can lead to a dangerous situation where a contractor has invested substantial effort on a project, only to find that the escrow funds that were there before have disappeared.
Another concern is just how safe generally the use of escrow really is for contractors. I’ll discuss this in more detail in the next section.
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Last Site Update: December 13, 2011
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