Empowering the Freelance Economy

How to master better payment terms as a freelancer

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GUIDE TO FREELANCER PAYMENT TERMS

This guide will equip you with the essential tips and payment terms you should understand and use to your advantage each time you create an invoice or bring on a new client

As your freelance business and client list grows, so too should your cash flow. But that doesn’t always happen. Often the larger the client or project, the longer the client will take to pay. That is why one skill every freelancer should master is devising payment terms that keep cash flow at a or ideally above comfortable level.

Why is this important? Mastering better payment terms as a freelancer is not only crucial for your financial health but also for your peace of mind. When money is too tight, stress can pile up in your personal life, health and business.

Here are some key strategies to consider when formulating your payment terms.

Before you start working: know your worth

Remember, you are providing a service or product and for the most part should be calling the shots on how much and when you get paid. So it is important to research industry standards and competitor rates for your skills and experience. Experience is often more valuable than you or a client may appreciate until it can be proven. When it does, your input on strategy could save a client a lot of money or bring in more unexpected revenues. That is a value-add that isn’t often baked into a freelancer’s rate when it is based on “industry standards”.

There is also a chance that if you have been working with a small set of clients you could be getting complacent and not bother to increase your rates year on year. The good thing though is some freelance service companies such Wethos peer-review your rates and help streamline pitches. If you are still stuck, there are annual sector-specific freelance rate reviews published by freelancer platforms such as YunoJuno. These act as a useful and independent pricing benchmark for you and your clients.

  • Be upfront and transparent: Clearly outline your payment terms in writing, including your preferred rate, milestones for phased payments, and the final due date. Include this information in your proposals, contracts, and initial email conversations. Otherwise, you could be wasting your time.
  • Outline late fees: In your contract, specify late payment fees to incentivise timely payments. While using them cautiously, late fees can discourage delayed payments and compensate you for the inconvenience.
  • Negotiate confidently: Don’t be afraid to advocate for yourself. If a client proposes unfavourable terms, politely offer alternatives you’re comfortable with. Explain the rationale behind your preferred payment schedule, like managing cash flow or protecting your time investment.

During the project:

  • Set clear milestones: Divide the project into achievable stages with corresponding payment milestones. This way, you receive payments throughout the project and mitigate the risk of non-payment if the project falls through.
  • Deliver value at each milestone: Ensure your work at each stage meets expectations and provides tangible value to the client. This strengthens your position when requesting payment and fosters trust for future projects.
  • Communicate effectively: Maintain open communication with your client about project progress, potential delays, and any changes that could impact payment schedules. Don’t leave them or anyone you are collaborating with guessing.

After completion:

  • Invoice promptly: Send a clear and accurate invoice immediately after completing the project or reaching a milestone. Include all necessary details like project description, date, hourly rates, and payment terms.
  • Offer multiple payment options: Consider offering your client various payment methods for convenience, like bank transfers, online payment platforms, or credit cards. This can expedite the payment process.
  • Follow up politely: If a payment is late, gently remind your client of the due date, your payment terms, late penalties and your preferred payment method. Avoid accusatory language and maintain a professional tone. There could be more than one person who has to sign off invoices. It is not an excuse, but it can happen. Hence, why freelancer emergency funds are a lifesaver.

Additional tips:

  • Consider a deposit: For larger projects, ask for a deposit upfront to cover initial costs and demonstrate your commitment to the work.
  • Build strong relationships: Cultivate positive relationships with clients. Reliable communication, high-quality work, and exceeding expectations can make clients more receptive to your preferred payment terms and encourage repeat business.

Remember, mastering better payment terms is an ongoing process. Don’t be afraid to adjust your strategies and refine your approaches as you gain experience and confidence. By being proactive, prepared, and professional, you can ensure you’re treated fairly and compensated appropriately for your valuable skills and effort.

Optimise Your Cash Flow

  • Get paid faster: Request partial payments such as a deposit upfront for larger projects. Asking for a deposit upfront to cover initial costs can demonstrate your commitment to the work. Offer incentives for early payments, like discounts or bonuses. Implement automatic payment reminders to avoid chasing late payments.
  • Outline late fees: In your contract, specify late payment fees to incentivise timely payments. While using them cautiously, late fees can discourage delayed payments and compensate you for the inconvenience.
  • Build strong relationships: Cultivate positive relationships with clients. Reliable communication, high-quality work, and exceeding expectations can make clients more receptive to your preferred payment terms and encourage repeat business.
  • Invoice efficiently: Use invoicing software or templates to streamline the process. Send invoices promptly and follow up professionally but persistently.
  • Consider invoice financing: If you have a healthy invoice pipeline, explore invoice financing options to bridge temporary cash flow gaps.

Payment terms you should get familiar with

Think of payment terms as your financial roadmap. Choosing the right ones ensures a steady stream of income, preventing those dreaded cash flow dry spells. Industry norms, project type, and even personal preferences play a role. While some fields dictate Net 30, always aim for terms that favour you. Negotiate, compromise, and ensure your agreed-upon terms are clearly stated in your contract.

Payable Upon Receipt

With Payable Upon Receipt, clients settle your invoice the moment they get it. Think speedy startups or small businesses – perfect for quick bursts of work.

Payment in Advance

Imagine securing your fee before even lifting a finger. Payment in Advance is like a safety net, ideal for big projects or clients with a history of delayed payments. One way to keep all parties happy is to negotiate a partial upfront payment and the rest upon completion.

Stage or “Milestone” Payments

For those marathon projects, stage payments divide your fee into instalments tied to key project milestones. Think website design – 25% for the initial design, 25% for approved content, and so on. This brings you predictable income throughout the assignment.

Net… 10, 20, 30…

Net 30 has long been the industry standard, meaning clients have 30 days to pay after receiving your invoice. While you might have to wait a bit, it’s common practice in some fields. Just remember to factor in this lag when planning your finances. However, if you need more cash to come in earlier, then you can change these terms to better suit your cashflow needs and negotiate Net 10, 15 or 20 days instead.

Early Bird Discount

Entice clients to settle your invoice faster with for example the 5% 10 Net 30 option. Offer a 5% discount for payments within 10 days, motivating clients to pay early and boosting your cash flow. You’re not limited to these options. You could offer terms like 2% 10 Net 20 or 10% 15 Net 60 to find the perfect fit for your situation.

Beyond terms: which payment method to choose?

Digital wallets like PayPal, Payoneer and Google Pay offer fast, secure transactions. However, if you are receiving transfers from abroad your client will have to foot some transfer fees and you might too. Plus there are currency fluctuations and often losses. Some freelancers and clients may prefer bank transfers given many banks in the UK offer faster payments, sometimes hitting accounts within two hours or at the very least 12 to 24 hours later after the transfer if coming from say the US. This is often a safer bet for all parties involved.

But you should try to not be out of pocket for getting paid by bank transfer or digital wallets. Ensure you factor in any charges for “the privilege” of getting paid. For example, receiving bank transfers. If you are concerned about losing out due to currency fluctuations or exchange rates, then consider using a special service for those clients, such as Wise.

  • Invoice promptly: Send a clear and accurate invoice immediately after completing the project or reaching a milestone. Include all necessary details like project description, date, hourly rates, and payment terms.
  • Offer multiple payment options: Consider offering your client various payment methods for convenience, like bank transfers, online payment platforms, or credit cards. This can expedite the payment process.
  • Follow up politely: If a payment is late, gently remind your client of the due date and your preferred payment method. Avoid accusatory language and maintain a professional tone even if things get ridiculously late.
  • Send a Letter of Demand: This is a legal document which outlines what you are owed including late fees and terms signed by the client. You can find a template of a Letter of Demand on sites such as Law Depot. By outlining some key elements, the letter allows the recipient to understand the request and potentially avoid further legal action. Here is what you could include in the letter:
    • Clearly state the reason for writing: Debt collection, demanding action, or making an insurance claim.
    • Provide details about the issue: Details of the debt, required action, or insurance incident.
    • Attach evidence: Contracts, photos, or documents supporting your claim.
    • Propose settlement terms (optional): Payment plans, reduced payments, or compensation amounts.
    • Include contact details for both parties: Names, addresses, and preferred communication methods.

Rethink how you earn as a freelancer

  • Revisit your rates: Have your rates kept pace with inflation? Conduct market research and consider a strategic increase. Be confident in your worth and communicate the value you deliver.
  • Diversify your clientele: Don’t put all your eggs in one basket. Expand your network and attract new clients through different channels. Offer package deals or discounts for bulk projects.
  • Upsell and cross-sell: Offer existing clients additional services or related projects within your skill set. This can be a lucrative way to increase revenue without acquiring new clients from scratch.
  • Explore new income avenues: Can you monetise your expertise through online courses, ebooks, or workshops? Consider alternative income streams to complement your freelance work.
  • Barter skills: Can you swap services with other freelancers or local businesses? This can save you money on essential services and help build valuable connections.

Navigating the Cost of Living crisis is all about adaptability and resilience. By proactively managing your finances, diversifying your income, and optimising your cash flow through effective payment terms, you should be better prepared to weather the storm and emerge stronger.

Keep the conversation going on social media:

Which payment terms are you using?

Considering using after reading this guide?

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