The work you’ve done is great, but now you want to be compensated. Being successful in getting paid as a freelancer involves dealing with the financial side of things, which, thankfully, isn’t as intimidating as it may seem. We’ve compiled everything you need to know about getting paid as a freelancer and managing your accounts.
Payment terms: setting and enforcing them
In theory, you have the freedom to determine your payment terms as a getting paid as a freelancer. It’s customary to have 30 days, but if you’d prefer to extend it by one or two weeks, you’re free to do so. For large projects, you can also request staggered payments so that you don’t have to wait for at least 30 days after the work is completed and approved before being paid.
Nevertheless, it’s important to note that sometimes you’ll need to agree to abide by the client’s own payment terms if they have set procedures for paying suppliers (which is usually the case with bigger companies). It’s even possible that some bigger companies will insist on 45, 60 or 90-day payment terms, and whether you accept these terms depends on how much you want the work.
Prior to beginning work, you should draw up a contract laying out the terms of payment and asking the client to agree. Then you have something to fall back on should they fail to meet those terms (though in small claims cases, an email chain showing an agreed price and payment period may be acceptable as evidence).
To create your invoices, make sure to include the following information:
- an invoice number;
- the name, address, and company information (if applicable).
- Address and name of your client’s company
- Your invoice number (you decide how it should be numbered).
- A date when the invoice will be sent.
- A deadline when the invoice needs to be paid.
- An itemized list of the work you’ve completed, along with unit costs, quantities, and total amounts due
- You’ll need your VAT number, if you’re registered for VAT – here’s more on VAT invoices
- If you have a Purchase Order number, please enter it
- along with your banking details so they can pay you
Keeping records of everything you’ve sent is essential. It is easiest to do this with accounting software, which allows you to create invoices that look professional. It’s possible to find excellent ones for free; Wave is a good choice. In order to make your invoices look even slicker, you might want to include your company logo at the top. Once you’ve completed creating the invoice, save it as a PDF and email it to your client.
There are getting paid as a getting paid as a freelancer who sends invoices as soon as they complete a job, while others wait until the end of the month to send out all their invoices. Whatever you do, you’ll find that money trickles into your account in dribs and drabs, which can be difficult when you’ve worked. There’s no such thing as ‘pay day’ anymore. To make sure you can still pay your bills in the event that invoices are delayed, you should have a ‘cushion’ of money in your bank account.
Recovering late payments
Although most clients pay on time, it is a common occurrence for self-employed people to chase late payments. Using your software, you can set up automated reminders to reduce their likelihood; however, this may annoy your client contact.
As a substitute, you could send an ‘overdue’ reminder the day the invoice becomes past due, followed by a second one a few days later if it still isn’t paid. If automated reminders do not work, write a courteous but firm message pointing out that the invoice has not yet been paid and reminding them of the date the invoice was due. It may also be beneficial to inform your client that you will be charging statutory late collection interest, but if this does not result in a payment, you can try contacting their accounts department.
There are some invoices that may become significantly overdue, without any sign that payment will be forthcoming. It may be necessary to write them a letter by a solicitor to spur them to action in this case. To avoid taking the client to small claims court, you can send a ‘letter before action’ or a ‘late payment demand’ if you intend to claim interest, compensation, and debt collection costs. Solicitors who specialize in debt collection can send these letters for as little as £3.
You can initiate your claim online if you encounter a situation where you have to go to court. You’ll need to weigh the need for the money owed against the likelihood of receiving any additional work after taking the client to court; it’s the last resort.
Know when to ask for money upfront and how to do it.
A supermarket wouldn’t expect you to be billed in 30 days for your purchases, but that’s usually how getting paid as a freelancer work when they offer services. In certain circumstances, it may be appropriate to ask for payment in advance.
A percentage of your project fee is often requested upfront for new clients, as they are an unknown quantity and it lessens your risk if you have received at least part of the payment before you begin work. This shows a commitment from them because otherwise you could book out the time and decline other work only to have them cancel. The remainder of the payment is due after the project is complete. The majority of clients will be fine with this, just explain when you send them your quote that this is how you handle all new clients.
In addition, you may want to request payment upfront from serial late payers. You might consider getting the payment in advance if you know chasing overdue invoices will drain your energy and time. The chances are they will pay quickly when they do not get the work until they do!
Getting paid as a freelancer, you’ll need to keep track of your daily accounting, which includes invoicing. It’s only one component of getting paid as a freelancer. The following are some other things you need to consider when running a business from a financial perspective.
Savings for taxes
Full-time workers’ tax and National Insurance deductions come out of their wages before they reach their bank accounts. As a self-employed person, you must register with HMRC, file a tax return, and make manual payments to HMRC on a regular basis (the deadlines are 31 January and 31 July). As a result, it’s a good idea to set aside a certain percentage of your earnings each month in a separate saving account so you’ll have enough to pay your tax bills (saving 25% should suffice).
Consider hiring an accountant.
Don’t spend much time completing your tax returns; instead, hire an accountant to do it for you. A good accountant will save you more money than the cost of their services, and they will alleviate a great deal of stress and time as well. To prepare your accounts for them, create a folder containing the following information:
- An overview of your income and expenditure, and any outstanding payments
- on your invoices
- for the month
- and on your bank statements
- and receipts
In order to make sure your tax bills are paid on time, it’s your responsibility to make sure your accountant completes your tax return and files it with HMRC. After the 31 January deadline of a tax year, you are legally required to keep your accounts for a minimum of five years.
Be sure to keep receipts.
All receipts for things you purchase for work, whether it’s a new laptop, an office chair, printer paper, postage costs, or any other expenses associated with running your business, should be kept. Since these expenses can be offset against the tax you pay, you will probably pay less tax than when you were employed full-time. You can easily keep track of all your receipts by taking twelve envelopes, one for each month, and storing them month by month.
If you have a limited company, it becomes more complicated.
For purposes of this article, we have assumed that you are a sole trader working as a getting paid as a freelancer. Accounting becomes a little more complicated if your company is incorporated as a limited company. You’ll also have more obligations if your profits exceed the threshold for registering for VAT. These are the official Government resources to help you understand what you’ll need to do if you choose to go this route:
- Preparing annual accounts for a private limited company
- preparing tax returns for private limited companies
- filing a VAT return
You may find accounting a challenging aspect of running a business if you’ve never done it before. There is good news, though: software makes it straightforward, and you will gain a new appreciation of accountants’ work.