6 ms·

Payday loans are coming for everyone

56 points by mckee1 8y ago

stanleydrew 8y ago
I have sympathy for people subject to the vagaries of corporate payment settlement terms, but when you agree to net 60 you may not get paid for 60 days. To get paid sooner will cost something.
- howeyc 8y ago
  This isn't really a story to me. Perhaps it could be re-titled "freelancer learns businesses usually pay net-60 (or 30, or 90). That there are intermediary companies offering cash-flow for a fee isn't exactly new either.
- chaosbutters 8y ago
  my company forces vendors to net 60, and if they argue with it, they will threaten net 90 and say that is the industry norm and they are being nice at net 60.
  - planteen 8y ago
    Does that work? If it does, you must be at a big company and not dealing with the government. Chasing down invoices seems to be a huge pain for small companies. It seems like many big customers would laugh at the small company and agree to NET 60, then pay you in 95 days.
- maerF0x0 8y ago
  Basically one needs a sliding rate scale on credit risk. At the very least one should be charging ~6% more (1.02 ^3) for net 90 terms, along with Credit Card like rates for missed payments. A good rule of thumb in America is if they have lawyers, you need lawyers.
- poulsbohemian 8y ago
  If we agree on net-60 and they actually pay net-60, then everybody is good. The problem is that anything > net-30 tends to be signaling that you'll get your money when we darn feel like it, maybe never. Yes, I understand that the larger the company, the longer the payment terms, but its that risk factor of the unknown that is the squeeze on the little guy. Ironically I was just discussing this with my partner this morning as I seek to collect on a debt of > 365 days... feels like there should be lots of opportunity for disruption around getting paid, as contract law (which should be the cornerstone of civilization) is not really helping me collect with any degree of speed.
maerF0x0 8y ago
Upfront, I normally am not for legislation. However one thing that's been on my mind lately has been the lag between work and getting paid for that work. Even for regular employees. The days of being paid 1x / 2x per month, IMO, stem from when we had to cut a corporate check to pay someone. A check sometimes meant two signatures required. This was massive overhead and thus we wanted to batch them and do them as infrequently as possible. Today payments are easily automated and extremely inexpensive. I see little reason one couldnt be paid at the end of a work day or even more continuously such as per calendar day or what have you (ie there are ~22 work days per month, but ~30 calendar days) ... I could see a good pro labour legislation being to get paid daily for companies with automatic deposit or over size X. Things like payday loans wouldnt make as much sense if you've already been paid 14/15ths of your pay up to that point and you're going to get the last 1/15th within 24 hours. Edit: Something like this: https://www.uber.com/info/instant-pay/ https://www.uber.com/info/instant-pay/ but automated and for everyone.
- loganfrederick 8y ago
  There is an interesting, well-funded startup tackling this problem: https://www.earnin.com/ https://www.earnin.com/ I am not affiliated with this company, just like their idea a lot for all the reasons mentioned in your post. Obviously they have to make money and presumably take some cut or added fee for providing the service of getting you paid before your employer does it, but at least they shorten the time between work done and getting paid.
- mrep 8y ago
  I get paid twice a month and I wouldn't care if I got paid only once a month considering all my bills are monthly or longer. Credit cards, rent, and internet are monthly. Utilities are monthly or biannually. I can't think of any other bill than that.
  - maerF0x0 8y ago
    I agree that for some, once one has enough cash sitting around it just becomes a sea of cash that barely changes order of magnitude. However, for many of America's working class they are < 1 paycheck from bankruptcy. I speculate that for many of them getting the "liquidity" of getting paid daily would stop some of them from missing payments.
s_dev 8y ago
The biggest payday loan company in the UK, Wonga recently collapsed due to fines from the regulator. https://www.theguardian.com/business/2018/aug/30/wonga-collapses-into-administration https://www.theguardian.com/business/2018/aug/30/wonga-colla...
tedunangst 8y ago
Isn't this normal in B2B (of which freelance is kind of a subset)? Normal terms might be net 60, but if you pay in less than 30, there's a discount.
- planteen 8y ago
  Yes it's completely normal. The author has no idea what accounts receivable looks like at most companies.
- sqrt17 8y ago
  One indication that this isn't B2B is the use of WorkMarket instead of dealing with gig workers in a B2B fashion. The stated value-add of WorkMarket is to allow businesses to manage their "freelancers and independent contractors". So businesses take a cut out of the budget to hand it over to a "management" company to sort out the paperwork, and they require their gig workers to provide liquidity to the client business via net30/60/90 terms. One has to be blind or stupid to call this a B2B relationship in the sense of two equals dealing with each other.
AJ007 8y ago
Per the article: "Should they not get paid by the client we don’t go after that money." If the company goes under while you are waiting to be paid, you end up with $0. Someone else is borrowing money, paying you in advance, and eating shit if they collect nothing from it. Not even close to payday lending in analogy..
- munk-a 8y ago
  Yea, that was the value add I saw in the article. I wonder if they could provide that service more modestly and apart from the timing as a pure insurance. You agree to take a fee on your check in exchange for being paid the amount owed when the employer cuts the check or when your contract dictates you'd be paid by, ignoring bad actors, mistakes, slow processing or bankruptcy. This is also a portion of our legal system that may just need more transparency and government assurances.
ljoshua 8y ago
This is factoring, not payday loans. As the author investigates, he finds this out as well. I've done plenty of freelance work and I deeply know the pain of getting paid late, but as others have pointed out, dealing with a larger business results in net 30/60/90 terms, when things are going well. The fee you pay to the intermediary is justified. Now if the only option to ever get paid was to pay an intermediary a cut of your salary, well then that would be a major issue. But otherwise this is the freelancer paying an intermediary for a) quicker access to funds and b) reducing the (albeit often small) risk of the client not paying.
- guelo 8y ago
  Net 30/60/90 is a scam, there's no reason companies couldn't pay earlier. That freelancers put up with it just means that they don't have enough market power.
  - ljoshua 8y ago
    It's a bit of a relic from back when bank transfers only happened via paper, but I wouldn't call it a scam. Megacorps give each other the same terms all the time, so it's more about tradition and inertia than market power. That being said, when I knew I have been a high-value member of a team as an outside resource, I've negotiated for better terms (net 15, for example).
mywittyname 8y ago
I hope users of these systems start a class action lawsuit to recoup their payments and that the industry is regulated such that the client is responsible for the fee. So instead of the author getting $650 on their $700, HuffPo should pay $750 for their $700 invoice. Once that happens, payments will magically be made as quickly as possible. Fast payment processing is a solved problem.
- planteen 8y ago
  I'm sure their contract stated NET 30/60/90 though. I've done freelance engineering work and that's how it was after I submitted my hours for the month (NET 30 in my case). Regular employees were paid every 2 weeks, but I was a freelancer. Freelancers also don't get benefits and get hit twice on Social Security. It's what you expect when you are getting paid on a 1099 and not a W-2.
- dumbfounder 8y ago
  All this will do is make sure freelancers are paid less across the board.
dwighttk 8y ago
That's not a payday loan. And "for everyone"? Not really.
madebylaw 8y ago
I am the technical co-founder of a company in the earned wage access space (link in bio). Happy to answer any questions. The main takeaways are: - We are paid back by the company on payday so the credit risk is on the company not the consumer. - Many (most?) of our users do not have access to consumer credit and would be classified as underbanked / unbanked. This is a great book for more background: https://www.amazon.com/Unbanking-America-Middle-Class-Survives-ebook/dp/B01912OYO0 https://www.amazon.com/Unbanking-America-Middle-Class-Surviv... - We charge a fixed fee per transaction, no interest is accrued or carried. - Philosophically, every day you work and are unpaid for it, you are selling your employer an interest-free bond of your labor whose term is payday.
- rahimnathwani 8y ago
  I second your book recommendation! I would add another, which has similar stories about the challenges of managing money when income and costs are volatile, but in developing countries rather than in the US: https://www.amazon.com/Portfolios-Poor-How-Worlds-Live-ebook/dp/B003TSEL14/ https://www.amazon.com/Portfolios-Poor-How-Worlds-Live-ebook...
endorphone 8y ago
A bit bizarre reading through the comments on here. It's like stepping back in time. Many suppliers demand 0 day terms now: You pay with a credit card or wire upfront, often before service or goods are even provided. Certainly for everything under a few thousand dollars, and often even for five digit purchases. Yes, even large companies. Oh, your super big company wants net 60 (or they'll threaten net 90)? If that even is offered, the vendor almost certainly adds a time and risk premium to the cost (that "early payment discount" is actually the real price. the net 30/60/90 prices are heavily penalized). Vendors aren't your creditors. Certainly random individual freelancers aren't. The notion that you, the customer, start a relationship with a payment company that demands a fee to get paid is absolutely ludicrous. Despite all of the splitting of hairs, it is far closer to a payday loan than it is factoring (FastFunds/WorkMark or whatever has their relationship with the publisher, not with the freelancer who just wants his cash, much less at the usurious prices). What a world when even the people of HN are defending these practices.
- planteen 8y ago
  > Many suppliers demand 0 day terms now: You pay with a credit card or wire upfront, often before service or goods are even provided. Certainly for everything under a few thousand dollars, and often even for five digit purchases. Yes, even large companies. I'm not necessarily defending it, but it just seems to be how the world works. I've been on this side of things as both a freelancer and as an employee of small companies invoicing bigger ones. Maybe if the product is physical, like semiconductors, things are different? My experience was with lots of 5-6 digit software engineering work. Sometimes there was up front NRE payment, but negotiating payment milestones were typically part of the sales team. I've never heard of or seen a 0 day B2B contract. It was never my department to question the way the contracts were structured, but it just seemed to be how B2B was done. I'd tell finance whenever I made a deliverable so they could invoice. A big offender of not paying timely (on NET 30/60) was the government themselves from what I saw. So it's not just like this is something some shady businesses are doing. At the end of the day, isn't salaried work often NET 30 or NET 15? I've never heard of being paid more often than bi-weekly.
  - 8y ago
edawerd 8y ago
CTO and co-founder of Gusto here. This has actually been on our mind for many years now, and it's a problem we've seen that hurts paycheck to paycheck employees the most. We've recently taken a first step towards rethinking how payroll should be for a modern workforce, and launched a pilot for a new product called Flexible Pay (https://gusto.com/flexible-pay https://gusto.com/flexible-pay). Flexible Pay enables employees to cash out unpaid earned wages, without any changes to how payroll runs. Happy to answer any questions about it. Also, if this is a space you're passionate about, we're actively hiring engineers for that team!
edw 8y ago
This practice has a very bad look, and my heart is with the freelancers. But I also know human psychology is fickle and there is a functionally identical way to pay freelancers that would generate far less ire: The client quotes the freelancer a due-on-receipt, net-zero-days price and then offers a "no hurry payment" bonus of twenty-five or thirty percent or whatever that comes with net-30/60/90 terms. If a freelancer doesn't ask about payment terms when negotiating payment with a new client, he or she will quickly learn to do so. You don't need to experience the sting of learning that your client intends to pay you net-120 more than once before you focus like a laser on payment terms and conditions. When I engage with freelancers or small businesses as vendors, I make a point of making sure the accounting folks know a particular vendor should not be subjected to "cashflow optimization," which I have known AP folks to elevate to an art, a sport, perhaps even a tenet of a fanatical religion. A couple of related items: Why Variable Pricing Fails at the Vending Machine: https://www.nytimes.com/2005/06/27/business/why-variable-pricing-fails-at-the-vending-machine.html https://www.nytimes.com/2005/06/27/business/why-variable-pri... Coke’s Segmentation Error: https://pragmaticpricing.com/2010/05/15/cokes-segmentation-error/ https://pragmaticpricing.com/2010/05/15/cokes-segmentation-e...

56 points by mckee1 8y ago

I have sympathy for people subject to the vagaries of corporate payment settlement terms, but when you agree to net 60 you may not get paid for 60 days. To get paid sooner will cost something.

howeyc 8y ago
This isn't really a story to me. Perhaps it could be re-titled "freelancer learns businesses usually pay net-60 (or 30, or 90). That there are intermediary companies offering cash-flow for a fee isn't exactly new either.
chaosbutters 8y ago
my company forces vendors to net 60, and if they argue with it, they will threaten net 90 and say that is the industry norm and they are being nice at net 60.
- planteen 8y ago
  Does that work? If it does, you must be at a big company and not dealing with the government. Chasing down invoices seems to be a huge pain for small companies. It seems like many big customers would laugh at the small company and agree to NET 60, then pay you in 95 days.
maerF0x0 8y ago
Basically one needs a sliding rate scale on credit risk. At the very least one should be charging ~6% more (1.02 ^3) for net 90 terms, along with Credit Card like rates for missed payments. A good rule of thumb in America is if they have lawyers, you need lawyers.
poulsbohemian 8y ago
If we agree on net-60 and they actually pay net-60, then everybody is good. The problem is that anything > net-30 tends to be signaling that you'll get your money when we darn feel like it, maybe never. Yes, I understand that the larger the company, the longer the payment terms, but its that risk factor of the unknown that is the squeeze on the little guy. Ironically I was just discussing this with my partner this morning as I seek to collect on a debt of > 365 days... feels like there should be lots of opportunity for disruption around getting paid, as contract law (which should be the cornerstone of civilization) is not really helping me collect with any degree of speed.

maerF0x0 8y ago

Upfront, I normally am not for legislation. However one thing that's been on my mind lately has been the lag between work and getting paid for that work. Even for regular employees. The days of being paid 1x / 2x per month, IMO, stem from when we had to cut a corporate check to pay someone. A check sometimes meant two signatures required. This was massive overhead and thus we wanted to batch them and do them as infrequently as possible. Today payments are easily automated and extremely inexpensive. I see little reason one couldnt be paid at the end of a work day or even more continuously such as per calendar day or what have you (ie there are ~22 work days per month, but ~30 calendar days) ... I could see a good pro labour legislation being to get paid daily for companies with automatic deposit or over size X. Things like payday loans wouldnt make as much sense if you've already been paid 14/15ths of your pay up to that point and you're going to get the last 1/15th within 24 hours. Edit: Something like this: https://www.uber.com/info/instant-pay/ https://www.uber.com/info/instant-pay/ but automated and for everyone.

loganfrederick 8y ago
There is an interesting, well-funded startup tackling this problem: https://www.earnin.com/ https://www.earnin.com/ I am not affiliated with this company, just like their idea a lot for all the reasons mentioned in your post. Obviously they have to make money and presumably take some cut or added fee for providing the service of getting you paid before your employer does it, but at least they shorten the time between work done and getting paid.
mrep 8y ago
I get paid twice a month and I wouldn't care if I got paid only once a month considering all my bills are monthly or longer. Credit cards, rent, and internet are monthly. Utilities are monthly or biannually. I can't think of any other bill than that.
- maerF0x0 8y ago
  I agree that for some, once one has enough cash sitting around it just becomes a sea of cash that barely changes order of magnitude. However, for many of America's working class they are < 1 paycheck from bankruptcy. I speculate that for many of them getting the "liquidity" of getting paid daily would stop some of them from missing payments.

s_dev 8y ago

The biggest payday loan company in the UK, Wonga recently collapsed due to fines from the regulator. https://www.theguardian.com/business/2018/aug/30/wonga-collapses-into-administration https://www.theguardian.com/business/2018/aug/30/wonga-colla...

tedunangst 8y ago

Isn't this normal in B2B (of which freelance is kind of a subset)? Normal terms might be net 60, but if you pay in less than 30, there's a discount.

planteen 8y ago
Yes it's completely normal. The author has no idea what accounts receivable looks like at most companies.
sqrt17 8y ago
One indication that this isn't B2B is the use of WorkMarket instead of dealing with gig workers in a B2B fashion. The stated value-add of WorkMarket is to allow businesses to manage their "freelancers and independent contractors". So businesses take a cut out of the budget to hand it over to a "management" company to sort out the paperwork, and they require their gig workers to provide liquidity to the client business via net30/60/90 terms. One has to be blind or stupid to call this a B2B relationship in the sense of two equals dealing with each other.

AJ007 8y ago

Per the article: "Should they not get paid by the client we don’t go after that money." If the company goes under while you are waiting to be paid, you end up with $0. Someone else is borrowing money, paying you in advance, and eating shit if they collect nothing from it. Not even close to payday lending in analogy..

munk-a 8y ago
Yea, that was the value add I saw in the article. I wonder if they could provide that service more modestly and apart from the timing as a pure insurance. You agree to take a fee on your check in exchange for being paid the amount owed when the employer cuts the check or when your contract dictates you'd be paid by, ignoring bad actors, mistakes, slow processing or bankruptcy. This is also a portion of our legal system that may just need more transparency and government assurances.

ljoshua 8y ago

This is factoring, not payday loans. As the author investigates, he finds this out as well. I've done plenty of freelance work and I deeply know the pain of getting paid late, but as others have pointed out, dealing with a larger business results in net 30/60/90 terms, when things are going well. The fee you pay to the intermediary is justified. Now if the only option to ever get paid was to pay an intermediary a cut of your salary, well then that would be a major issue. But otherwise this is the freelancer paying an intermediary for a) quicker access to funds and b) reducing the (albeit often small) risk of the client not paying.

guelo 8y ago
Net 30/60/90 is a scam, there's no reason companies couldn't pay earlier. That freelancers put up with it just means that they don't have enough market power.
- ljoshua 8y ago
  It's a bit of a relic from back when bank transfers only happened via paper, but I wouldn't call it a scam. Megacorps give each other the same terms all the time, so it's more about tradition and inertia than market power. That being said, when I knew I have been a high-value member of a team as an outside resource, I've negotiated for better terms (net 15, for example).

mywittyname 8y ago

I hope users of these systems start a class action lawsuit to recoup their payments and that the industry is regulated such that the client is responsible for the fee. So instead of the author getting $650 on their $700, HuffPo should pay $750 for their $700 invoice. Once that happens, payments will magically be made as quickly as possible. Fast payment processing is a solved problem.

planteen 8y ago
I'm sure their contract stated NET 30/60/90 though. I've done freelance engineering work and that's how it was after I submitted my hours for the month (NET 30 in my case). Regular employees were paid every 2 weeks, but I was a freelancer. Freelancers also don't get benefits and get hit twice on Social Security. It's what you expect when you are getting paid on a 1099 and not a W-2.
dumbfounder 8y ago
All this will do is make sure freelancers are paid less across the board.

dwighttk 8y ago

That's not a payday loan. And "for everyone"? Not really.

madebylaw 8y ago

I am the technical co-founder of a company in the earned wage access space (link in bio). Happy to answer any questions. The main takeaways are: - We are paid back by the company on payday so the credit risk is on the company not the consumer. - Many (most?) of our users do not have access to consumer credit and would be classified as underbanked / unbanked. This is a great book for more background: https://www.amazon.com/Unbanking-America-Middle-Class-Survives-ebook/dp/B01912OYO0 https://www.amazon.com/Unbanking-America-Middle-Class-Surviv... - We charge a fixed fee per transaction, no interest is accrued or carried. - Philosophically, every day you work and are unpaid for it, you are selling your employer an interest-free bond of your labor whose term is payday.

rahimnathwani 8y ago
I second your book recommendation! I would add another, which has similar stories about the challenges of managing money when income and costs are volatile, but in developing countries rather than in the US: https://www.amazon.com/Portfolios-Poor-How-Worlds-Live-ebook/dp/B003TSEL14/ https://www.amazon.com/Portfolios-Poor-How-Worlds-Live-ebook...

endorphone 8y ago

A bit bizarre reading through the comments on here. It's like stepping back in time. Many suppliers demand 0 day terms now: You pay with a credit card or wire upfront, often before service or goods are even provided. Certainly for everything under a few thousand dollars, and often even for five digit purchases. Yes, even large companies. Oh, your super big company wants net 60 (or they'll threaten net 90)? If that even is offered, the vendor almost certainly adds a time and risk premium to the cost (that "early payment discount" is actually the real price. the net 30/60/90 prices are heavily penalized). Vendors aren't your creditors. Certainly random individual freelancers aren't. The notion that you, the customer, start a relationship with a payment company that demands a fee to get paid is absolutely ludicrous. Despite all of the splitting of hairs, it is far closer to a payday loan than it is factoring (FastFunds/WorkMark or whatever has their relationship with the publisher, not with the freelancer who just wants his cash, much less at the usurious prices). What a world when even the people of HN are defending these practices.

planteen 8y ago
> Many suppliers demand 0 day terms now: You pay with a credit card or wire upfront, often before service or goods are even provided. Certainly for everything under a few thousand dollars, and often even for five digit purchases. Yes, even large companies. I'm not necessarily defending it, but it just seems to be how the world works. I've been on this side of things as both a freelancer and as an employee of small companies invoicing bigger ones. Maybe if the product is physical, like semiconductors, things are different? My experience was with lots of 5-6 digit software engineering work. Sometimes there was up front NRE payment, but negotiating payment milestones were typically part of the sales team. I've never heard of or seen a 0 day B2B contract. It was never my department to question the way the contracts were structured, but it just seemed to be how B2B was done. I'd tell finance whenever I made a deliverable so they could invoice. A big offender of not paying timely (on NET 30/60) was the government themselves from what I saw. So it's not just like this is something some shady businesses are doing. At the end of the day, isn't salaried work often NET 30 or NET 15? I've never heard of being paid more often than bi-weekly.
- 8y ago

edawerd 8y ago

CTO and co-founder of Gusto here. This has actually been on our mind for many years now, and it's a problem we've seen that hurts paycheck to paycheck employees the most. We've recently taken a first step towards rethinking how payroll should be for a modern workforce, and launched a pilot for a new product called Flexible Pay (https://gusto.com/flexible-pay https://gusto.com/flexible-pay). Flexible Pay enables employees to cash out unpaid earned wages, without any changes to how payroll runs. Happy to answer any questions about it. Also, if this is a space you're passionate about, we're actively hiring engineers for that team!

edw 8y ago

This practice has a very bad look, and my heart is with the freelancers. But I also know human psychology is fickle and there is a functionally identical way to pay freelancers that would generate far less ire: The client quotes the freelancer a due-on-receipt, net-zero-days price and then offers a "no hurry payment" bonus of twenty-five or thirty percent or whatever that comes with net-30/60/90 terms. If a freelancer doesn't ask about payment terms when negotiating payment with a new client, he or she will quickly learn to do so. You don't need to experience the sting of learning that your client intends to pay you net-120 more than once before you focus like a laser on payment terms and conditions. When I engage with freelancers or small businesses as vendors, I make a point of making sure the accounting folks know a particular vendor should not be subjected to "cashflow optimization," which I have known AP folks to elevate to an art, a sport, perhaps even a tenet of a fanatical religion. A couple of related items: Why Variable Pricing Fails at the Vending Machine: https://www.nytimes.com/2005/06/27/business/why-variable-pricing-fails-at-the-vending-machine.html https://www.nytimes.com/2005/06/27/business/why-variable-pri... Coke’s Segmentation Error: https://pragmaticpricing.com/2010/05/15/cokes-segmentation-error/ https://pragmaticpricing.com/2010/05/15/cokes-segmentation-e...