
Payday loans are coming for everyone - mckee1
https://lukeoneil.substack.com/p/payday-loans-are-coming-for-everyone
======
endorphone
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
> 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.

~~~
mmt
> 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.

Although being paid in arrears (up to 7? days in California, IIRC) is legal,
it's uncommon. Otherwise, on payday, the worker is paid for that day, as well
as the preceding 13-14. On average, that means only 7.5 days are "on credit".

More importantly, though, it can't be compared to a contractual debt, since
payroll is much more heavily regulated by the state. In California, for
example, the penalty, even for being late, can be disproportionately severe,
and the state has resources to pursue them (plus, PAGA[1] provides an
incentive for private pursuit of those penalties otherwise only payable to the
state).

This difference is an example of why "gig economy" (the article mentions at
least Uber, for example) classification of workers as contractors can be such
an important issue.

[1]
[https://labor.ca.gov/Private_Attorneys_General_Act.htm](https://labor.ca.gov/Private_Attorneys_General_Act.htm)

------
maerF0x0
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.

~~~
mrep
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.

~~~
CompelTechnic
Considering the time value of your money-

If you get a $1500 paycheck every 15 days, as opposed to a $3000 paycheck
every 30 days, then you earn 15 days of interest on $1500 that you would not
otherwise earn. At Ally bank, that could be 1.85% in savings accounts. This
two-paycheck cycle would repeat 12 times a year, so for half the year you earn
interest you would not otherwise earn, totaling to roughly (compounding
negligible) 1500*.0185/2= $14.

If you assumed you could get 9% in the stock market, the time value would be
$68.

~~~
mmt
> = $14

.. per year. Or $1.16/mo or under .04%. Although that's not literally nothing,
it's awfully close. Oh, and that's before income tax.

> If you assumed you could get 9% in the stock market, the time value would be
> $68.

Although that assumption may be a bit of a stretch, something a typical
consumer might be far more likely to encounter (and need not apply income tax
adjustments to) is consumer loan payments.

A 20% revolving balance paid 15 days early results in $12.50 monthly, which
can pay for a streaming subscription.

------
ljoshua
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
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
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).

------
stanleydrew
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.

~~~
chaosbutters
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
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.

------
AJ007
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
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.

------
edw
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-
pri...](https://www.nytimes.com/2005/06/27/business/why-variable-pricing-
fails-at-the-vending-machine.html)

Coke’s Segmentation Error: [https://pragmaticpricing.com/2010/05/15/cokes-
segmentation-e...](https://pragmaticpricing.com/2010/05/15/cokes-segmentation-
error/)

------
tedunangst
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.

~~~
sqrt17
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.

------
mywittyname
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
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.

------
s_dev
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-
colla...](https://www.theguardian.com/business/2018/aug/30/wonga-collapses-
into-administration)

------
madebylaw
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-
Surviv...](https://www.amazon.com/Unbanking-America-Middle-Class-Survives-
ebook/dp/B01912OYO0)

\- 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
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...](https://www.amazon.com/Portfolios-Poor-How-Worlds-Live-
ebook/dp/B003TSEL14/)

------
edawerd
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!

------
dwighttk
That's not a payday loan.

And "for everyone"? Not really.

