One of the biggest headaches for freelancers is getting paid on time. Every client has his or her own timeframe to pay your invoice, and if that doesn’t line up with when you need cash in your account to pay your own bills, that can spell certain financial disaster. Still, there are certain strategies you can use to get paid faster — to nudge clients to not only pay you on time, but even early, so that you keep your cash flowing.
Bill before you start the work
This gets easier as you have more experience under your belt as a freelancer, but it’s a practice that ensures you don’t do work for a client who virtually skips town without paying you. Because a business relationship is built on trust, you want to ensure that you will get paid before you spend a minute working on a project.
Alternately, you can bill half of your fee up front, with the remainder due upon completion. Some clients might be more comfortable with this scenario.
Use invoicing software
If you’re still manually creating invoices in Microsoft Word every month, you’re wasting a lot of time unnecessarily. Accounting software — which you should be using to manage your business expenses anyway — has invoicing functionality baked in, and it’s simple to use.
You can get paid even faster by accepting online payments with your digital invoices. Yes, you’ll pay a percentage of that credit card transaction to the card processing company, but it’s well worth not having to wait for a “check is in the mail” scenario.
Editor’s note: Check out GoDaddy’s Online Bookkeeping tool, which enables you to send invoices and easily accept payments via debit and credit cards on your smartphone.
Get your payment policy in writing
“Payment policy,” you ask, “What’s that?” It’s an important way to help ensure that you get paid faster.
Your payment policy should state when invoices are due, such as “15 days net” or “90 days after receipt.” It should also outline whether or not you offer discounts for early payments or penalty fees for late payments (more on that in a minute). Your policy should be clearly communicated on each invoice you send, and it might be a good idea to include it in your initial contract when onboarding a new client.
Try invoice factoring
Surprisingly, few freelancers are aware of what invoice factoring is. Basically you sell invoices that are due in the future to a company who gives you financing now. So rather than waiting 90+ days for that client to get around to paying you, by working with an invoice factoring company, you can get access to the cash now.
Typically you’ll get 80-percent of the invoice amount now and 20-percent (minus fees) when the invoice is paid. This is a fantastic way to ensure that your bank account is never dry, especially if you bill large invoices that your clients are slow to pay.
Penalize for late payments
One sure way to get slow-paying clients to move faster in cutting you a check is to charge a late fee for invoices paid after the due date listed, through your payment policy.
You could set that penalty to be a flat fee based on how old the invoice is, such as:
- $100 for invoices 30 to 60 days past due
- $200 for invoices more than 90 days past due
Or you could have the penalty fee be a percent (small, but still motivating enough to get them to pay) of the total invoice.
Alternately, you can reward clients who pay before the due date. But make it restrictive: if invoices are due in 30 days, only offer incentive in the form of a small discount for invoices paid within the first five days.
Have a cancellation policy
For freelancers who work continually with clients over time, it can be frustrating to have a big project end all of a sudden. That’s where having a contract with a clear cancellation policy comes in handy. In it, you can stipulate the penalty for ending the contract early.
Let’s say you’re billing a client $1,000 a month for work. Verbally, he agreed to a six-month engagement. But what happens if he bails after just two? You’ve aligned yourself to work on this project for six months, and now you’ve got to scramble to make up that lost income.
If you stipulate in your contract that the client will have to pay half of the remaining retainer if he terminates the agreement before the six months is up, he will then be on the hook for $2,000 (half of the remaining $4,000 retainer). You legally can take him to court if he doesn’t pay this.
Most clients won’t bail if there’s a cancellation policy, so it’s also just good practice to ensure that they’re serious enough to commit long-term to working with you.
Get paid to protect your business
As a freelancer, you need to get paid to protect yourself and your cash flow. These are easy enough practices that, once implemented, will ensure that your clients always pay you on time. Never worry about getting paid on time again.
Also published on Medium.