One of the most stressful aspects of freelancing is making sure that your clients actually pay you for your hard work. There's nothing more frustrating than when a client keeps asking for more work when you still haven't gotten a cheque. Here's what you can do to ensure that you get paid.
This post originally appeared on Double Your Freelancing.
Today I want to focus on how you can get paid faster, get paid more reliably, and never need to worry about whether or not that invoice you sent out will arrive before the rent is due.
Most freelancers, myself included, tend to be optimists. We expect that things will work in our favour. Don't we all love that high you get after signing a new client? When you realise that over the next few weeks or months a bunch of brand new money will be sent your way?
But that sense of accomplishment and optimism can fade pretty quickly. And it usually fades around money. Late invoices. Stubborn clients. Squabbling over payment terms. The stress that naturally comes around when you realise that you live in a world of fixed expenses and variable income.
When I started to build my agency, I became responsible for the financial livelihoods of quite a few other people. As a freelancer, I supported myself, my wife Deborah, and my kids. But as the owner of an agency, I suddenly added Andrew (and his wife), Ryan (and his wife, who was going through medical school), Ann, Kristi, Thomas, Zack, and a number of others to the list of people who depended on me to keep their bank accounts from overdrafting.
You already know how hard it is to keep yourself afloat. It gets exponentially harder when you have a twice-a-month payroll expense.
We couldn't afford to let our money situation run wild. I had to build into the way we worked certain frameworks that helped us ensure that we'd get paid on time so that I could pay both my personal and business expenses.
Here are a few of the things I learned along the way.
Always Get A Deposit
Before starting work on any project, get a deposit payment -- especially when working with a new client. As we'll discuss shortly, it's really important to set the precedent that if you're not paid, you don't work.
I see many freelancers, especially those new to the profession, who don't do this. Either it never occurred to them, or more likely, they don't want to "rock the boat" and make demands that could jeopardize the new relationship they have with their client.
That's very understandable, but just about every professional services company requires some sort of downpayment as a way to ensure that someone's serious and able to pay.
If you're billing for time, I like invoicing for one to two weeks of work upfront. You treat this income as a credit, and when you produce invoices in the future you deduct the total due from this credit pool.
Most invoicing tools support the idea of client credits, but if you're using one that doesn't, here's what you can do: When drafting a new invoice, include a line item with a negative total amount that either fully deducts the invoice total (if the total is less than the client's credit) or deducts whatever's left from their initial deposit payment.
I typically require deposits when a contract is signed. This could be months prior to the kickoff date of the project, and as a matter of policy I let my clients know that I can only schedule their project if they have paid a deposit. Be careful though: This money is a liability, and you probably shouldn't treat these deposits as actual income.
When I was first starting out, I invoiced twice a month. You should invoice as frequently as you can -- preferably once a week.
The shorter the loop between sending out an invoice and getting paid, the better. If you're working on NET 30 terms (meaning: the client has 30 days to pay your invoice) and you invoice once a month, you're looking at upwards of 60 days (two months!) before getting paid for your time.
This is less than ideal, especially since many of us don't have the cash flow to support that.
Don't Work Unless You're Paid
Always try to get paid upfront. Not just for deposits, but for everything. That's the best case scenario.
I once had a client who had booked about half of my team. They were a good client, and paid their bills on-time. Mid-way through the engagement they defaulted on one of their invoices. And because we invoiced twice a month, we actually had two outstanding invoices out and we were working toward an upcoming invoice when I realised they were overdue.
So I called the client, who I was on fairly good terms with, and let him know his payment was late. Our exchange went something like this:
"Brennan, I meant to tell you… I'm out of money. But it's OK. I'm talking with some investors this week."
We had around a large amount of money still outstanding. And I then realised that there was a fairly good chance now that I'd never see that money, or at least not anytime soon. The conversation didn't get much better:
"Brennan, I'm putting everything on the line with this business. My house. My kid's college money. Everything."
"Paul, as the founder you have everything to gain and everything to lose. I'm not your investor. I own a services firm, and I need to pay people for the month and a half they spent working on your project. And now you're telling me you don't have the money."
And this made me realise something: I never, ever, ever want to need to play the role of debt collector ever again.
After this project, I began telling my clients that we only work if there's money in the bank. We'd invoice weekly, and if the money for the upcoming week wasn't cleared in my bank account by Monday, I'd rather us sit idle than work on credit.
When questioned, here's what I'd say:
"The best use of my time is making sure that my clients get the best service possible from me. If I'm spending time chasing around invoices, I'm not spending that time on delivering value to my clients."
And it worked. This might be a bit different than what your clients are typically used to, but you need to let them know what the advantage is for them (you being able to focus on them instead of delinquent clients).
What To Do When You Work On Retainers
Working on retainer is a slightly different subject, which I've also written about on my site. Retainers and productised consulting services are like subscriptions. They're predictable expenses for your clients and predictable revenue for you.
My accountant, who I pay on retainer, holds a copy of my credit card and charges me on the first of each month like clockwork. I never see or pay an invoice. Likewise, my coaching clients are automatically billed monthly.
If you have clients who are paying you monthly, try to avoid needing to send invoices in order to get paid. Setup some sort of automated payment system that will draft from your clients account each month.
Always Get it in Writing
Always use a contract! I'm still shocked and surprised by how many people I talk to don't have legal, binding contracts between them and their clients.
Besides the usual indemnity, non-disclosure, and other clauses that go into services contracts, you want to make sure your contract includes provisions for what happens if you don't get paid on time.
At a minimum your contract should ensure that:
- The client owns nothing they haven't paid for.
- You charge interest on overdue invoices (non-issue if you charge upfront).
- You have every right afforded to you by the courts to get that money back.
If you're working with a client who isn't exactly fiscally stable (like the example I gave above), I'd strongly advise you to have your clients personally guarantee your agreement with them. When I contacted my attorney in a panic to let them know that I was owed $80K, he told me that the best he could do was to send them a strong letter and contact their bank with a request for the money. But if the bank account didn't have anything in it, I was out of luck.
Also, obvious disclaimer: I'm not a lawyer. This is all what my lawyer told me and my personal experience. What I relayed above might not be applicable to you.
Recruit A "Bad Cop" To Be Stern With Your Payment Requests
If you're not charging upfront and a client is late on paying, the best thing you can do is be stern. Let them know that you need to stop work, and that it will only resume once you're paid. (This is also a great time to mandate a pay-upfront policy.)
I had a full-time assistant who was my "bad cop" -- she'd call clients who were overdue and relay on the terms of our contract, namely that we don't work if they're in a state of default. Since many of my clients were attached to me and were on really good terms with me, I could position myself as the "good cop" who helplessly needs to go along with whatever Ann, the office manager, says we need to do. Of course, if you work alone, you need to be your own bad cop.
The preferred path is to avoid this altogether by always getting paid upfront. But if you're not there yet, try to think about who could be the "bad cop" in your freelancing business.
In closing, here's what I recommend:
- Bill weekly. It's easier for your clients to budget for, and makes charging upfront a lot easier (since the burn rate per week is fixed).
- Charge upfront. Get deposits upfront, and invoice ahead of time.
- Use a contract that guarantees that you'll get paid.
- If you can, live off last month's profits. If you need cash, don't be afraid to seek out the cash you need to survive, even if it means losing money. Stressing over whether or not you can pay your bills is something you want to avoid, as it will adversely affect your work and the relationships you have with your clients.
Follow these steps and you should be paid on time, every time.
The Definitive Guide To Getting Paid As A Freelancer [Double Your Freelancing]