Refusal to Use Escrow
Business transactions require trust: the faith that the person you are working with will do what he or she promises or represents. Trust, in turn, is based largely on familiarity—and that’s a problem when doing business online, where parties often don’t know each other. Freelancing clients want work done before they pay, so they don’t risk contractors taking the money and running. Freelancers have the opposite concern: they don’t want to spend a lot of time doing something and then have the client disappear when it comes time to compensate them for their effort.
Fortunately, there’s an elegant solution to this sort of “you go first” trust deadlock between two parties: a neutral third party. In the case of online freelancing, this usually takes the form of an escrow feature that mitigates the risk of dealing with someone you don’t know. Escrow is a simple three-step process: the client deposits funds with the freelancing site; the contractor does the work; and then the site releases funds to the client when the work is completed. Escrow isn’t a panacea—conflicts can still occur that the parties have to resolve—but it substantially ameliorates the risk of either side being ripped off outright by a brazen scammer.
Escrow, like any safety feature, only works if you use it. A seatbelt doesn’t do you any good in the event of an accident if you haven’t buckled it, and an escrow feature provides no security against being ripped-off if you choose to work for a client without funds deposited. And this presents a problem when you find clients who don’t want to use escrow—sometimes for good reason, and sometimes not.
The percentage of clients who agree to escrow is strongly influenced by the policies and features of each freelancing site. Some marketplaces, understanding the value of escrow, mandate its use, eliminating the option of a client opting out. Others don’t require it, but strongly recommend it, and on these, the vast majority of projects specify its use. Sadly, some sites don’t make escrow a default option, and some even provide a disincentive for its use—such as the charging “escrow fees”. Naturally, you will see more projects where escrow is not in use at these venues.
When a client does not want to use escrow, he or she is immediately removing a prime tool you use to improve your trust in any pending transaction. By so doing, the client is forcing you to decide via other means whether or not you will trust him or her enough to do and deliver the work before payment. This means that the other assessment factors for the quality of the client become all the more important.
The client’s work record on the site is especially critical in these situations, because it is, in my opinion, the most reliable indicator of a client’s overall trustworthiness. It’s not the case that all clients who turn out to be scammers are new to a freelancing site, but certainly the vast majority of them are.
If a client who has never hired and paid anyone before wants me to work without escrow, I flatly refuse. But I’ve run into long-established clients who didn’t want to use escrow for what I considered valid reasons, such as it causing them extra work or difficulties with accounting and payment. It would be a bit self-centered for me to imagine that a client who’s done 200 projects over several years and has a great history of reviews, was setting all that up just to rip me off when I worked for him the first time. :) So in these cases, I sometimes will work without escrow, and I haven’t been burned yet.
Well, I should say that while I haven’t been burned, I’ve gotten singed once or twice.
When you use escrow, there’s a sense of urgency on the client’s part to cough up the money and deposit it: you aren’t going to start work until that is done. When you work without escrow, however, you are delivering the end product and then asking for payment, and this puts all of the power in the client’s hands.
I remember one project that a client posted on a Thursday, indicating an urgent need to have the work completed by the following Monday. She didn’t want to use escrow and claimed that she never had done so in the past. Since she had over 50 completed projects and no complaints against her, and the project wasn’t worth a great deal, I agreed to her terms. I worked over the weekend, sent her the completed product she required promptly—and then heard not a peep from her for six weeks. I did eventually get paid, after many ignored messages inquiring about whether the work was acceptable and when payment would be forthcoming. But this episode underscored to me just how much of your (already limited) power over the client you give up when you work without escrow.
If you’ve already worked with the same client many times in the past, it’s safer to work without escrow, since your level of familiarity and trust will be higher. But it’s still not as safe as using it. The problem of the imbalance in the power relationship still exists. And you must watch out for truly clever con artists who will build your trust with several small projects so you feel secure, and then lure you into doing a larger amount of work that they never pay for. This is rare, but it happens.
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Last Site Update: February 1, 2012
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