I have a confession to make: I’m terrible about asking for money. I don’t mind it when I get paid, of course, but the rest is just awful. I’ve been a business owner for nine years, and for nearly 15 years before that, I’ve been in some sort of sales and marketing role.
Back in the 1990s when I worked for my father-in-law’s company, everyone knew I was not the person to ask customers to pay their invoices. So they took that responsibility off my plate, and I got to pretend that money magically appeared in our bank. During that time, I was also helping out a friend of mine to run her indie music website. My job was to solicit sponsorships and get people to kick in some money to help support the site.
I learned an important albeit uncomfortable lesson all those years ago: it’s important to get paid.
And it’s often one of the toughest things for every entrepreneur to do. We don’t like asking for money, but an important part of being a business owner is, well, having a business.
If you want to have a successful business, or at least just keep the lights on, you have to learn to not only ask for money, you have to be able to keep track of it, and to make sure you get paid enough for the work you do.
Here are four strategies you can use to make sure you get paid what you’re worth, on time — and keep track of it easily.
1. Have a solid strategy to get paid
The No. 1 rule in making sure you get paid? Set that expectation up front, as soon as you start your business. Set your pricing structure, set your payment schedule, and then put it in your contract and on all your invoices.
I offer 30-day payment terms. That means when I send an invoice, you have 30 days to pay it. Since I deal mostly with corporations, they’re used to this, and pay on time. I also make sure I’m flexible in how I receive payments. I chose an online bookkeeping system that lets people pay via credit card and PayPal, but they can also send payment via ACH. And I even have one client who still sends me paper checks. (I’m not complaining, money is money.)
You also have to look at whether the cost of accepting credit cards is worth it: credit card service providers (as well as PayPal and Square) usually take out 2.75 percent to 3 percent from all transactions. So if you have a $1,000 invoice, you’ll lose $27.50 to $30 in fees. On the other hand, you’ll get your money that much faster — so you have to weigh the convenience versus the cost.
Finally, make sure you establish consequences for what happens if people don’t pay on time. I charge 2 percent of an invoice total if it has not been paid 60 days after it has been issued. And I set up my bookkeeping system to charge that automatically and add it to the next invoice when it goes out.
2. Use an online bookkeeping system
If you’re sending out invoices that you made on your word processor or spreadsheet, you’re going to have a serious problem. For one thing, they don’t look very professional. For another, you have to keep track of who paid and who didn’t, which usually requires another spreadsheet and checking it every couple of days to see who’s overdue and who’s still under the 30-day wire. Finally, it can be a pain to figure out who’s got an outstanding invoice and who paid, especially if you don’t update your system regularly.
I use an online bookkeeping system. I’m not good with numbers, so I like the way this tool does everything automatically. It lets me create recurring invoices, which get sent out on a preset schedule. I can also accept credit card payments, import expenses from my business bank account, and even run reports on profitability and taxes.
In short, my online bookkeeping tool makes me feel smart about my money, and I haven’t needed to hire a bookkeeper to manage it.
Plenty of other entrepreneurs are using their own systems to make sure they get paid with tools including GoDaddy Online Bookkeeping, FreshBooks, QuickBooks, Xero and Wave.
You can use GoDaddy’s solution to send invoices and receive payments on your mobile device — perfect for mobile businesses like landscaping, mobile pet grooming, or even mobile car care. You can see when an invoice has been viewed or paid, set auto-reminders, and accept payments online.
3. Make sure you’re charging enough
A young writer friend asked me about how she could make more money writing. In the course of our discussion, I discovered she was only charging $35 for a completed article, which took her two to three hours. That worked out to nearly $12 per hour, or $24,000 per year — which is not enough to live on. Plus, she was trying to figure out how to attract more of that kind of work so she could up her revenue.
Instead, I gave her this formula to figure out how much to charge:
- Determine how much money you need to make per year in salary. For this example, let’s say it’s $50,000. You also need to pay rent, utilities, software subscriptions and association memberships, etc. Let’s be generous and say it’s another $10,000, for a total of $60,000. (If you’re running a manufacturing business, there’s a whole different way to figure out how much revenue you need to generate.)
- There are 2,000 working hours per year, but most entrepreneurs and freelancers only get 1,000 billable hours (the rest is spent trying to get new clients, doing administrative work, and so on). So divide your revenue needs by 1,000 hours.
$60,000 ÷ 1,000 = $60 per hour
3. Determine how many hours a project will take. Multiply that number by your hourly rate and quote that amount to you customers. Never publish or quote an hourly rate to clients.*
$60 x 3 hours = $180 per project
As you get more experienced and better at your job, raise your rates. After you’ve been at something for a few years, and can it do it more quickly and efficiently while coming up with better results, that’s worth more. But that doesn’t mean you should be penalized for being better.
If you were to charge $100 per hour, you could work 600 hours per year to make the same amount of money, or you could work 1,000 hours and make $100,000 per year.
* I always recommend creative professionals and entrepreneurs charge by the project or even by the month, and not by the hour. That’s because once you start telling people that your time is worth $150 to $250 per hour, their eyes bug out and they freak out. But if you tell them a two-hour project will cost $400 to $500, they’re OK with that. (I don’t know why. I’ve just seen that over the years. It’s really weird.) But if you’re an attorney or a high-powered corporate consultant, keep billing by the hour and ignore this part.
4. Get over yourself and ask for the money!
Here’s what 2018 me would say to 1998 me: “Be strong, be firm, but be nice. That’s your money those people are holding, and your family depends on you getting paid. You did the work, you delivered what they wanted on time, so they need to deliver what you are owed — on time and in full.”
Just remember: you’re not being a nuisance when you ask people to keep up their end of the bargain. You’re not being a jerk when you ask people to pay you what they owe you. And you’re not being unreasonable to expect a living wage for the work you do.
But if you still feel uncomfortable, you’re in luck: most of the online bookkeeping systems let you send invoices automatically, as well as email reminders to people who haven’t paid by your deadline. That means you never ever have to ask people for money yourself; you can still send gentle reminders from the safety of your laptop.
Bottom line: if you want to be a successful entrepreneur, you have to get paid. You need to decide your project rate based on your revenue requirements; you need a good bookkeeping system that’s more than slapped-together invoices; and you need to get just a little courage and ask for the money no matter how uncomfortable it makes you. Just remember to be nice, and you’ll get what you’re asking for (and what you’ve earned).