Service providers face the same questions with every new client: can I trust my client? How long will I have to wait to be paid? Will I have to send an overdue notice?
This is particularly unnerving for service providers who are new to the business. They have little experience with customers and only a few customer contacts they have worked with previously and whom they could count amongst their “regulars”.
Hence, they have to put their faith in their clients’ willingness to cooperate and pay. If the client is based in the same city or area as the service provider, there is the possibility of arranging a meeting to get to know each other personally and build trust. A good relationship is decisive for successful cooperation.
It is more difficult when the business relationship is formed over the Internet. Whilst this kind of cooperation is advantageous, especially for cooperating abroad, it can complicate the construction of a good and comfortable business partnership. Personal meetings are rarely possible. Instead, one is limited to Skype, telephone conferences and email. Often, service providers ask themselves how to judge the trustworthiness of their clients and whether they will be paid for their work.
In order to avoid being stuck with the costs, service providers can ask the client to make an advance payment. But even then, they only receive part of their payment. In this case, the providers have to nevertheless trust that the client will pay. This can cost time and nerves, especially when they are unfamiliar with submitting bills and overdue notices.
An escrow service is the secure solution. A third, independent party is engaged to ensure that both parties adhere to the conditions of the contract and that no one comes away empty-handed. The client transfers the agreed amount to a separate account that he or she has no access to. This means that the service provider can be sure of payment. As soon as the project is finished, the money is released and the service provider is paid. There are several advantages to this method:
- Security: first of all, complete security of being paid for one’s work. You don’t need to start working until the money is in the separate bank account. Once it has been transferred, the customer cannot transfer it back without the consent of the service provider.
- Improved financial planning: as the service provider knows for sure that he will be paid after finishing the project, he can plan his finances more easily. He does not have to wait for the customer to transfer the money and wonder when to send a possible overdue notice. This allows him to take care of his own bills.
- Manner of payment: the client transfers money to the account. Depending on the clauses of the contract, the service provider can have the money transferred to a bank account of his choosing, be it PayPal, Moneybookers or simply his own bank account. It is therefore unnecessary to agree upon a separate payment method with the client.
- Focus on the essential: because you will definitely be paid for your work, it is possible to begin a project easier, quicker, and with more assurances. Pecae of mind is provided by the Escrow service.
When you decide to do business over the Internet, an escrow account can be immensely helpful in saving time and fraught nerves. It is recommended to use such a service, particularly when you are just starting out as a freelancer and have little experience with the associated working conditions.