There are more than 76 million freelancers working the U.S. alone. That’s almost half of the total labor force and a 33% increase since 2017

‍

If you’re not offering your services to freelancers, you’re essentially losing out on half of your potential target market. But fintechs and banks rely on processes that don’t account for the unique challenges involved in servicing freelancers.

‍

One particular area that’s particularly challenging? Verifying a freelancer’s income.

‍

It’s such an essential part of qualifying customers that it can’t be ignored, but freelancers usually don’t have the stable income employees do, and you can’t just ask them for pay stubs.

‍

Here’s what you can do instead.

‍

4 methods for verifying freelancer income and employment

‍

Much like when you need to verify income for employees, you’ll need a freelancer to provide documentation that confirms how much money they’re bringing in. But while fintechs and banks are used to asking for pay stubs—and know how to review them—freelancers can’t produce them.

‍

There are three types of documents you can ask for instead, and one method you can use to get all that data automatically.

‍

Detailed financial statements

‍

There are two types of financial statements you can ask for: bank statements and tax documents.

‍

With bank statements, all you need to do is ask a freelancer to supply bank statements for a specific period—anywhere from a few months to a year. In theory, this allows you to see all payments they received from clients and customers in one place.

‍

Tax documents will show you the income a freelancer reported to their local revenue service. In the United States, you might ask for a freelancer’s Proposed Individual Tax Assessment, a document the IRS sends to individuals that lists their income, tax deductions, and tax credits. Other jurisdictions will have their own equivalent, with different names.

‍

Benefits

Using bank statements to verify a freelancer’s income has the following benefits:

• Ease of access: Every freelancer can easily access their bank statements without any specific knowledge or skills.
• Full record of transactions: By getting bank statements, you’ll see every transaction a freelancer has made through that account. That’s great for seeing all payments from their clients and getting a sense of their business expenses.

‍

Here are the benefits of using tax documents instead:

• Less risk of fraud: Official documentation from a revenue service is harder to falsify than bank statements.
• Less review required: When getting bank statements from freelancers, someone on your team will have to review them line by line to add up all relevant transactions. With tax documents, you’ll get a single number for that income.

‍

Drawbacks

For bank statements, you’ll have to account for the following:

• Lots of paperwork: Analyzing multiple statements to get an overview of a freelancer’s income can take a significant amount of manual work unless you use specialized tools. Especially if they use multiple bank accounts.
• Time-intensive: Freelancers will have to spend a ton of time accessing, downloading, and submitting financial statements, which might cause them to stop pursuing your services.

‍

With tax documents, expect these drawbacks:

• Potentially dated information: Since tax season only comes around once a year, you could be validating a freelancer’s income with documents that are nearly a year old. With how volatile freelancing can be, that could lead to an inaccurate assessment of their current income.
• Resistance from freelancers: Not all freelancers are comfortable submitting their tax documentation, meaning you could lose out on valuable customers if this is your only method of verifying their income.

‍

Statements and certifications from freelancer platforms

‍

Freelancer platforms like Upwork and Fiverr allow freelancers to produce documents you can use to verify income. Freelancers who use Upwork, for example, can produce a certificate of earnings that automatically calculates the income they’ve received for up to a year prior. On some platforms, you can even get a full transaction history or billings and earnings reports.

‍

Benefits

Here’s why you might want to use freelance platform statements to verify a freelancer’s income:

• Ease of access: For a freelancer, getting these statements is as simple as clicking through a few options on their freelancing platform of choice.
• Single-source documents: Too often, freelancers have to gather documents from multiple sources to prove their income. If you offer the ability to do this through statements from freelancer platforms, you make the process a lot easier for them.

‍

Drawbacks

While these statements are easy to get, they do have their drawbacks:

• Not applicable to all freelancers: Not all freelancers use these platforms meaning this method won’t work at all for them. Worse, these statements aren’t even available from all freelancer platforms.
• Not always representative of total income: Even freelancers who use these platforms extensively might have clients or other sources of income that never pass through them. If you rely exclusively on the documents produced by these platforms, you won’t be able to include other sources of income in your analysis.
• Lack of detail: With freelancing being inherently unstable, you’ll want an abundance of data to verify a freelancer’s income. However, statements from freelancer platforms rarely have the detail you need. They don’t always give a complete picture of where freelance income is coming from, how stable it is overall, or the type of payments received.
• Inconsistent formats: The statements from these platforms might be slightly different from documents you’d see in dedicated accounting or financial software, meaning you’ll have to spend extra time reviewing them.

‍

Accounting software reports

‍

Some freelancers use accounting software like Quickbooks to track their income and expenses, allowing them to create detailed financial statements that show income, expenses, and more.

‍

Benefits

If you use accounting software reports to validate a freelancer’s income, expect the following benefits:

• Detailed and thorough: These reports can answer just about any question you have about a freelancer’s finances.
• Easy to gather: While gathering bank statements and tax documents can be difficult and time-intensive, accounting software reports can be prepared in just a few clicks.
• Familiar: Since your organization likely uses the same reports freelance accounting platforms produce, you’ll have an easier time pulling the data you need.

‍

Drawbacks

Convinced this is the method for you? Consider these drawbacks first:

• Not available for all freelancers: Some freelancers don’t use any accounting software at all, meaning you won’t be able to get these reports from them.
• Dependent on individual bookkeeping skills: If a freelancer relies on a professional accountant, then you’re sure to get all the information you need. If not, you’re relying on that freelancer’s own bookkeeping abilities.
• Variable accuracy: The accuracy of these reports depends on a freelancer’s bookkeeping skills. If they don’t reconcile their accounts regularly, for example, their reports will be less accurate.

‍

Integrate directly with freelancer platforms

‍

Verifying a freelancer’s income relies on a ton of documentation and a significant amount of manual work—whether it’s on your shoulders or the freelancer’s. No one method can account for all freelancers, since they all have their own personal situation, their own way of tracking their income, and their own level of bookkeeping skills.

‍

So what can you do?

‍

There’s one way you can build a seamless integration with some of the most popular freelancer platforms into your services, meaning you get the data you need without forcing freelancers to essentially audit themselves before signing up. It’s called Deck.

‍

Deck allows users to connect more than 3,500 alternative data sources to their own tool, including freelancer platforms like Upwork, Fiverr, Freelancer.com, Toptal, and more. Allow freelancers to link their accounts directly to your app in just a few clicks, consenting to give your business access to detailed income history and project activities.

‍

With Deck, you can:

• Give freelancers a simple, efficient way to share employment and income data, built right into your service.
• Refresh their data as their income changes without needing to gather statements all over again.
• See detailed breakdowns of a freelancer’s month-to-month income, expenses, and tax obligations.
• Get full visibility into a freelancer’s job history to identify risk indicators.
• Gain insight into ongoing and open projects to estimate future income.
• Get the data you need more quickly and make better decisions.

‍

Curious to see Deck in action? Get in touch with a product expert here.

‍

‍

Don’t let volatility obscure opportunity

‍

Fintechs and banks can’t afford to avoid providing services to freelancers, not when they make up nearly half of the economy. But assessing a freelancer’s credit risk and verifying their income can be difficult. You’re not guaranteed to have accurate information and you’re usually putting the onus on a freelancer to gather all the data you need. With the right method, you can eliminate most of these risks, streamline the experience for everyone, and avoid missing out on valuable opportunities.

‍