Investors are belatedly learning Upwork (UPWK), a marketplace operator that connects businesses with freelance workers, has been financing enterprise customers without conducting appropriate due diligence. In its latest quarterly filing, Upwork inserted a new warning that caught our eye:

“...we may be subject to additional risk if Upwork Enterprise clients fail to pay us for amounts we advance to talent on their behalf, including financial losses resulting from our inability to recover such funds…”

The warning does not appear in the company’s latest annual report.

Not coincidentally, the new warning coincides with a significant increase in Upwork’s allowance for doubtful accounts. The company’s 372.1% increase in bad receivables was 10.14% of revenue in the latest quarter.

Even worse, new language in the filing suggests Upwork is not doing adequate due diligence prior to extending credit to enterprise customers:

“Clients’ failure to pay is increased if we do not adequately screen potential Enterprise or other clients, do not conduct sufficient credit checks, or otherwise do not adequately monitor clients’ spend on our work marketplace.”