Freelancer Management System (FMS) vs Vendor Management System (VMS)

Content:

1. What’s the Difference Between Freelancers and Vendors?
2. Why Does Freelancer Management Require a Different Approach?
3. When Is Vendor Management More Appropriate?
4. How Do the Management Processes Differ?
5. What Systems Support Each: FMS vs VMS?
6. What Are the Compliance and Risk Considerations?
7. How Does Each Model Impact Your Workforce Strategy?
8. Conclusion: Freelancer vs Vendor Management — Why It’s Not One or the Other

The best way to decide whether you need a Freelancer Management System (FMS) or a Vendor Management System (VMS) is to look at your requirements and understand how you actually engage with your external workers. Answer these questions to decide which tool to opt for:

• Are you engaging with the freelancers themselves or the talent agencies that supply these professionals to your team?
• How frequent are these engagements?
• Are they usually one-off requirements or recurring needs?
• What is the nature of your contracts with them?

An FMS and a VMS are both tools that you’d use to manage your external resources. Figure out whether you are working with more ‘freelancers’ or ‘vendors and talent suppliers’ to choose the right tool for the purpose. Don’t forget – in a hybrid environment, there’s often an overlap, so you may need a mix of both tools to operate efficiently.

What’s the Difference Between Freelancers and Vendors?

The difference lies in how they support your company as you look for external resources for your projects. 

You know you’re working with freelancers when:

• They work on your deliverables themselves.
• They are self-employed individuals that you have reached out to directly, and not through any company or talent provider.
• They work with you on one-off projects. If you love their work, you may want to engage them again, but you’ll need to draw up a new contract every time.
• You onboard, collaborate with and pay them directly, without the intervention of any talent agency.
• You bear the responsibility of vetting their skills, managing contracts and classifying them.

Think about the independent graphic designer who redesigned your company website, the cybersecurity professional who updates your security systems every quarter, or the tax consultant who files your company taxes every year. These professionals are all freelancers!

On the other hand, you know you’re working with vendors when:

• They are third-party companies who provide the people or services you need.
• Your relationship with them is a B2B engagement.
• You have a long-term understanding with them – you can reach out to them any time you need fresh talent.
• They are the ones engaging the workers, (sometimes) providing project oversight on your behalf, and then paying them once the work is done.
• They manage worker contracts, compliance and classification so you don’t have to.

If you have a talent agency, a staffing firm or a temp agency that supplies workers to your company on an ongoing basis, they are what you’d call vendors. 

What is vendor management? Find out everything you need to know. ⬅️

Why Does Freelancer Management Require a Different Approach?

Your freelance workforce strategy should be designed to help you manage the realities of working with independent professionals – think shorter, quicker, project-based requirements. It should account for:

Speed: Depending on the project, you may onboard hundreds of professionals for one quick requirement (say, a shoot for a movie or a brand promotional event happening across cities).

Agility: After the project is done, you may or may not work with those professionals again. Your freelancer strategy should make it easy for you to engage a whole new set of people each time.

Communication: While the project is on, you will need to work closely with your chosen team of freelancers, directing them and getting the work done as per your exact needs. Your freelancer workflow should enable this.

In terms of the process requirements, this calls for:

• A seamless freelancer onboarding process for individuals, enabling you to collect and store their data compliantly, on a case-by-case basis.
• A streamlined contract process that lets you manage agreements, NDAs and confidentiality contracts, keeping in mind that each contract may need unique clauses.

A payment process that lets you gather bank details, process invoices, and make payments across countries, currencies and timelines without having to do it all manually.

When Is Vendor Management More Appropriate?

Your vendor engagements are likely to be more long-term, structured relationships, so your vendor management strategy should be built around that and ensuring vendor selection best practices. It should account for:

Longevity: You are likely to want to maintain ongoing relationships with a smaller but trusted set of vendors that you will turn to every time.

Diversity: You may have a different vendor for each industry or location you operate in, each with its own processes and compliance requirements. For example, you may have a tech vendor who supplies only IT talent to you. Or you may have a specific vendor for all your talent needs in London, one for your requirements in Paris, Delhi, Hong Kong and so on.

Comprehensive requirements: You may require managed service support, wherein you would need the vendor to not just supply talent but also take over the full spectrum of associated responsibilities – like managing compliance, onboarding, project delivery and payment disbursements.

In terms of the process requirements, this calls for:

• Procurement protocols that guide how you manage vendor proposals, select the right agencies and onboard them.
• Strong oversight via SLAs, where the vendor’s responsibilities are clearly outlined – what exactly will they look after, by when, and at what cost.

Project managers who liaise with all your diverse vendors, managing timelines, dependencies and business outcomes.

How Do the Management Processes Differ?

Let us look at how your freelancer vs vendor management processes should be different.

What Systems Support Each: FMS vs VMS?

Now that we have looked at the difference between freelancers and vendors and how the approach to managing them should differ, let’s delve into the tools that enable this.

Freelancer Management Systems (FMS)

Freelancer Management Systems are tools specifically designed to navigate the fast, agile and individual nature of freelancer relationships. A great FMS:

• Connects you to talent pools to support quick engagement.
• Has the capability to streamline everything associated with individual onboarding including managing contracts, recording work history and tracking qualifications.
• Helps you manage compliance by automating classification and generating checklists to highlight any process gaps.
• Enables you to pay your freelancers across countries, automating invoice processing, currency conversions and payment history tracking.

Check out our list of top 10 freelancer software tool to consider.

Vendor Management Systems (VMS)

Vendor Management Systems on the other hand, are tools that help you navigate the longer-term, structured relationships with your talent vendors. A well-designed VMS:

• Consolidates all your vendors under one platform. However, it generally offers high-level visibility – you may not be able to track individual talent under each vendor.
• Manages and tracks supplier contracts and documentation, highlighting upcoming renewals, updates and more.
• Tracks vendor performance against KPIs, and generates metrics and insights that let you make informed decisions. Here again, this happens at a vendor level – you may not be able to break it down to how individual talent under each supplier is performing.
• Offers spend visibility for each vendor. Measured against the metrics generated, it can give you valuable insights for your annual audits.

Read our in-depth guide into what a vendor management system (VMS) is.

What Are the Compliance and Risk Considerations?

Whether you are working with freelancers or vendors, the right tool can help you streamline processes and manage associated risks. However, you will need to know what these risks are in the first place, so you can establish the processes to sidestep them.

What to consider when working with freelancers?

Misclassification is one of the greatest risks to keep in mind. Many managers don’t know the implications of seemingly harmless actions. For example, asking a freelancer to do something outside the scope of their contract, dictating their work hours, or even offering them your office facilities to work from – can all result in the worker being classified as an employee.

The result? Your company may be asked to pay fines and back taxes on the ‘employee you had wrongly classified as a freelancer’ for so long. You may also have to pay benefits to the worker and deal with reputational damage.

However, there are few things that your freelancers should be responsible for themselves.

• Quality of work: The freelancer must ensure the work is done ethically, legally and up to the expected standards.
• Registrations and tax filings: As an independent worker, the freelancer must ensure these are done in a timely manner.

What to consider when working with vendors?

With vendors, the key thing to ensure is contractual accountability. Your contracts with them should be airtight. All their responsibilities should be clearly outlined – as well as their liabilities if something goes wrong.

Your vendors responsibilities would include

• Upholding relevant laws in each region: Working hours, benefits, payment terms and more differ from country to country. Your vendor should look after these factors for the talent that they are supplying to you.
• Updating you of any changes: If your obligations as a client change due to some policy update, they will need to let you know in a timely manner.

How Does Each Model Impact Your Workforce Strategy?

Let’s compare an FMS vs a VMS – and see how they each stack up against various factors that may impact your talent strategy.

Conclusion: Freelancer vs Vendor Management — Why It’s Not One or the Other

With a modern, hybrid and dispersed workforce, you are likely to experience an overlap in your requirements. An FMS and a VMS both have their own advantages and limitations when it comes to managing freelancers vs agencies.

You need an FMS if you are working with hundreds of individuals on a more sporadic (or even a one-off) basis, especially if they are spread out across several regions. But this tool is not suitable for managing your more established vendor relationships too.

You need a VMS to manage those talent providers and staffing agencies who work with you to provide talent on a more recurring basis. But this tool will only give you a high-level visibility, and is not so agile with individual data.

That's where an integrated system shines. A platform like TalentDesk brings together the capabilities of both an FMS and a VMS, bridging the gaps of each system and ensuring workflow harmony with your entire external workforce. 

It combines the data of both systems – giving you high-level as well as granular visibility. TalentDesk offers capabilities for individual freelancer management, generating tangible cost advantages for teams with as few as 10 freelancers. At the same time, it is also designed to bring together scattered vendor data in one place, helping you streamline longer relationships and workflows.

So if you are looking to move beyond disconnected external workforce systems and are ready to adopt a single integrated strategy for freelancers and vendors, TalentDesk is the ideal solution for you. Check out our page on how Vendor Management works with us.