Comparing Fees For Freelance Marketplaces and the Escrow System

When working as a freelancer, there are two types of options available to you. You have the freelance marketplace, and the escrow system. Which one is best? WondaPay discusses here.

The Fees Comparison

PeoplePerHour and Upwork are good examples of freelance marketplaces that help to connect buyers and sellers. These marketplaces have a lot of different options available, such as bidding for jobs, identifying specific freelancers who can provide specialist services, and then use their escrow-style functionality to provide and manage payments and advertise gigs. 

Due to a lack of competition in the marketplace, largely because the industry is made up of the same five or six players, these sites tend to charge similar commissions regardless of where you go and will range from anywhere between 3% and 20%. 

The majority of marketplaces will charge depending on the amount of work that is done for a particular client instead of how much is collected in a specific month. To give some example figures, this means that if you had a new client, you would have to pay up to fees of 20% up until a minimum of £250 worth of work has been done. After that, you would then have to pay 7.5% fees. And then, once you do more than £2500 worth of work, you only pay 3%. This helps to incentivise continued collaboration with one particular client.

However, the majority of clients on market places like PeoplePerHour or Upwork don’t function like this. You may only have a handful of clients who provide enough work to earn 3% fees.

Something else that freelance marketplaces are also known for is the concept of double-dipping. This refers to not only charging the buyer but also the seller for the transaction.

It’s probably worth noting that a lot of marketplaces did cut their fees during the COVID-19 pandemic to provide support for both customers and professionals, but it is only a matter of time before these reduced rates are phased out now that the pandemic is beginning to come to an end. 

Contrastingly, those services which are escrow-only don’t have any features like helping to connect you with customers. The job is only to safeguard the project funds that you have. This means that they can offer lower fees, which allows you to retain more of your money. 

The Payment Times Comparison 

One of the biggest issues the freelance marketplaces are encountering is the payout time. Once the payment has been verified, it can wait up to 14 days in transition before it hits your bank account This is most likely a security measure because online fraud is a genuine problem, so holding it for 14 days helps to prevent the issue. 

One of the biggest problems that most freelancers will have is a constant battle to maintain steady cash flow. Because there can be up to a 14-day period where you can access money, this means that a lot of freelancers have to plan out their spending with much more precision. 

Contrastingly, the escrow service releases funds pretty much immediately. This means that it will be in your bank account within a short period. 

So, Which is Best?

When trying to decide whether the marketplace or the escrow is the best way to go, it’s important to remember that both have advantages. The primary consideration that most freelancers will have is often time related or financial in nature, which makes escrow a more appealing option in a lot of cases. 

The higher levels of commissions that the marketplaces charge makes it a difficult choice for a new freelancer. When trying to work with a brand-new client for the first time, the fees can get quite expensive.

The other big problem that a lot of freelancers will have with the marketplace environment is the extensive waiting period to get access to the money. Having to wait 14 days to get access to funding is very frustrating, and it means that all the people will struggle to maintain a business without a steady cash flow.

These are all things that don’t necessarily occur when using an escrow service. However, the only problem with escrow is that it just serves to manage money. There is no way to connect with professionals, and there isn’t as much of a support network.

The functional truth of the matter is that when it comes to a lot of situations, most freelancers will use a combination of the two. Many people will work with a client for the first time on the site and then move to an escort service when it’s convenient. Ultimately, it’s the best way to ensure a long-term relationship that isn’t financially damaging for either side, which is the most important factor.