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01 Sep 2022

What do creators need? 3 challenges embedded finance can help the industry tackle

From the outside, being a creator or a freelancer can look like a dream. Choosing your own hours and projects, being your own boss, and ultimately earning a living from doing what you love – what could be better? That is, until you need access to credit, mortgages or a sense of what the coming months might hold.

For all the flexibility and autonomy of freelancing, there is a trade-off. A huge proportion of time in the gig economy is spent less on illustrating, podcasting and writing commissions, and more on chasing payments and managing tax paperwork.

Being your own boss means there’s no back office team to handle your accounts for you, or issue you with a reputable history of payslips and P60s, and that’s enough to leave some creators wondering if they were better off when they had the might of the company finance department behind them.

Greater certainty with payments

One of the biggest difficulties with working in the gig economy is that income is rarely even. Instead of one steady job that earns the same each hour and pays on the same day of the month, a creator’s income appears in dribs and drabs as individual invoices are paid out.

It’s a highly stressful way to make a living, especially if your next invoice payout is 30 days away but there’s rent and bills to come before then. And on top of that, freelance gigs can come as a mixture of flat fee commissions, quotes and hourly or daily rates, which means keeping track of what is coming in changes from week to week.

The result is that creators are often left in a state of not knowing how much they’re going to have in their account and when it’s going to arrive. For many freelancers, invoicing means an agonising wait as they count down the business days and hope their client pays on time – or even pays at all.

Sadly, while embedded finance could automate invoices, receipts, reconciliation and so on, most companies are unlikely to agree to a system of instant payment. But embedded finance can give creators the tools to get more certainty with their income. With integrated payment flows, platforms can offer freelancers options for rapid payouts and easy income tracking within the same portal.

That’s something that ride-hailing app Lyft offers to its drivers. While Lyft has an automated weekly payout, it also uses embedded finance to give drivers the ability to cash out their earnings at any time – including fares for rides given that day. With that kind of flexibility, drivers are able to decide exactly when and how much they’re getting paid.

An open door to mortgages and lending

When creator earnings are uneven, the problem isn’t just that budgeting becomes harder. It’s that so many traditional financial institutions are still built around jobs that deliver a regular, stable income.

A 2018 study by The Mortgage Lender found that 45% of UK freelancers struggled to provide the right income documents when applying for a mortgage. And it’s no wonder. Freelancers have so many more hoops to jump through. It’s not a matter of showing 3 month’s earnings plus paperwork, it’s more like two years of accounts, and that puts them a long way behind a PAYE employee.

Faced with those difficulties, 21% of respondents said they had considered changing their career just to make the process easier. Some even take a PAYE job for six months simply to qualify for a mortgage.

That’s a pretty bad outcome for the company they treat like a revolving door, and it’s a ridiculous roundabout way to tackle a problem that really needs a straight road of innovation. This freelancer-mortgage challenge alone would be a great target for a creative solution. Any takers?

Those same hurdles appear when applying for loans, renting, or even buy now, pay later. And with the global gig economy exceeding a billion workers, it’s an issue that can’t go overlooked.

It’s also one that will take an innovative approach to solve, like the one put forward by MONET. Powered by Weavr’s Worker Finance Plug-in MONET exists to help creators maintain a smooth, regular cash flow without needing to chase payments. Creators simply invoice MONET and get their earnings advanced to them, meaning all of their income is at their disposal whenever they need it.

A guiding hand for managing finances

When freelancers and creators step into the gig economy, they might be prepared for the life of uneven, irregular income that lies ahead. But one difficulty that often goes overlooked is how to manage that income when it does arrive.

Part of the problem is that plenty of creators don’t set out to start their own business. At some point, they went from making a little money from something they love to it being their entire income, with all the admin that comes with it.

Without knowing exactly when their payments are going to come, freelancers have to get creative. That means creating budgets for months when income hasn’t actually arrived, all while leaving a mysterious portion aside for taxes or emergencies.

When you’re just one person, understanding overnight how to create budgets, file taxes and pay yourself a salary from variable income is a daunting task. There is a world of opportunity for disruptive startups to tackle these challenges and build successful businesses.

When they use embedded finance to power the financial side of things, innovators can help to make things easier to manage, by giving creators tools to keep track of earnings and segregate funds for expenses or taxes within their freelancer marketplace portal. These scenarios are simply what we can easily spot on the surface – dig a little deeper and you’ll see the market is crammed with opportunities for innovation,

The growth of the side hustle has seen whole segments of sites like TikTok dedicated to tutorials for invoicing clients, creating portfolios and managing freelance income. Soon there will be a new wave of digital platforms to help fledgling creators with the admin side of running their business – and with embedded finance as part of the offering, they can have the tools to manage their income with true flexibility and autonomy.

Whether your offering is an application, marketplace or platform, if you’re looking to embed finance into your business, set up a meeting with one of our experts in your industry and request a demo today.

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