As a freelancer, one of the most important things you can do is to ensure you get paid for your work. While there are many ways to achieve this, some methods are more effective than others.
One of the best ways to get paid as a freelancer is to use a service like Paypal or Venmo. These services allow you to send invoices and request payments from clients, and they also provide a way for clients to easily pay you.
Another effective method is to use a contract. A contract ensures that both you and your client are clear on the terms of your agreement, and it can provide protection if there is ever a dispute.
Finally, it’s always a good idea to keep good records of your work. This means keeping track of deadlines, communicating with clients, and keeping copies of any contracts or agreements you have. By taking these steps, you can help to ensure that you always get paid as a freelancer.
Once you complete a project for a company, your work is done. Or, it should be, but sometimes receiving payment for your services can be a whole battle of its own. A large part of any freelancer’s life is knowing how to handle the financial side of things. Today, we aim to help you with just that.
Here is everything you need to be aware of as a freelancer when it comes to getting paid and managing your accounts.
How do freelancers ensure they get paid
For freelancers, getting paid is often one of the biggest challenges. Because they don’t have a regular employer, they often have to rely on clients to pay them on time and in full. This can be difficult, as some clients may be late in paying or may try to lowball the freelancer. To ensure that they get paid, freelancers need to be proactive.
First, they should always get a signed contract before starting work. This contract should outline the scope of work, the deadline, and the payment terms. Second, they should keep detailed records of their work, including hours logged and deliverables completed.
This will help them track their progress and make it easier to invoice their clients. Finally, they should stay in communication with their clients throughout the project. This will help to ensure that there are no surprises and that both parties are on the same page.
By taking these steps, freelancers can help to ensure that they get paid on time and in full for their hard work.
Setting up your payment terms properly
You can set your own payment terms when working as a freelancer. It’s customary to give 30 days notice, but you are perfectly free to extend it to one or two weeks if you wish. For big projects, you might also request that payments be staggered so you won’t have to wait longer than 30 days after the work is done and signed off before you’re paid.
Although, you will find that you must occasionally abide by the payment terms set by a client, especially if this company has set procedures for paying suppliers (which will usually be the case with larger companies). Depending on how much you want the project, some larger companies may require net 30, 45, 60 or even 90-day payment terms, if this is the case, it may we worth factoring these invoices.
It is important to draw up a contract before you start working with a client. It should set out the terms of your payment. Then, if they fail to meet these terms, you have something to fall back on.
Invoicing explained
The following pieces of information need to appear on your invoices:
- The word ‘invoice’
- Your name, address and company name (if applicable)
- Your client’s company name and address
- An invoice number (your numbering system is entirely up to you)
- The date the invoice is being sent
- The date when payment is due
- An itemised list of the work you’ve completed, along with the unit costs, quantities and total amount due
- VAT and your VAT number, if you’re registered for VAT
- A Purchase Order number, if you have one
- Your bank details, so that they can pay you
Maintain a record of everything you’ve sent. Accounting software makes it easy to create invoices that look professional. Add your company logo to the top of your invoices to make them look even sleeker. Your finished invoice should be saved as a PDF and emailed to your client.
Many freelancers send an invoice as soon as a piece of work is complete, while others wait until the end of the month to do all their billing. If you’ve been employed, you’re used to getting cash in dribs and drabs; you don’t get ‘pay day’ anymore. To ensure you can still pay your bills even if invoices are delayed, it’s wise to keep a cushion of money in your bank account.
Chasing late payments
In spite of the fact that most clients pay on time, chasing late payments is unfortunately part of self-employment. Your software can send automated reminders to help reduce the likelihood, but this is likely to annoy your client contacts.
The first reminder should be sent on the day the invoice becomes overdue, and a second reminder should be sent a few days later if the invoice is still unpaid. You can also send a courteous, but firm email reminding them to pay the invoice and pointing out that they still haven’t paid you. You can also remind your client that you will charge statutory late payment interest, but if this fails to produce the desired results, you could call the client’s accounts department to follow up.
The payment of some invoices may fall far behind the original due date, with no sign of a resolution in sight. It may be necessary to send them a letter from a solicitor to get them moving. To pre-empt going to a small claims court, you can have a solicitor send the client a letter before action, or a late payment demand if you plan to claim interest, compensation, and debt collection costs. Solicitors who collect debts can send these letters for the low cost of £3 on occasion.
You can start your claim online if you need to take the client to court. Taking your client to court is a last resort; you must balance the need to get the money owed with the prospect of receiving any additional work afterward.
When and how to ask for payment upfront
When you offer services as a freelancer, you are usually invoicing your clients after 30 days. It’s not the same as shopping at a supermarket and assuming that you’ll be charged in 30 days. A payment in advance may be appropriate in some circumstances, however.
In general, it’s common to request a percentage of your project fee, usually 50%, in advance for new clients, since they are an unknown quantity, and having a portion of the payment in hand before you start the project mitigates the risk. Having them commit to the time also proves that they intend to keep it, as you could book out the time and turn down other work only to have them cancel. Any remaining payment will be due at the end of the project. It is fine with most clients to do this, and all you have to do is explain this to them when you send them the quote.
It may also be useful to ask serial late payers for payment upfront. Getting the payment before you begin chasing overdue invoices is worthwhile if you know you’ll be wasting time and energy chasing them. If you don’t get the work until they get paid, you’ll probably find they pay quickly.
Accounting
As a freelancer, you depend on invoices to get paid and to make sure your day-to-day accounting is taken care of. In addition to the financial aspects of running a business, here are a few other things you’ll need to consider.
Save for tax
Taxes and national insurance are deducted from your wages before they reach your account if you’re employed full time. If you are self-employed, you must register with HMRC, submit a tax return and make manual payments to HMRC (the deadlines are 31 January and 31 July). To ensure you can pay your taxes, it’s a good idea to save a percentage of your income each month in a separate savings account. Saving 25% should be adequate.
Hire an accountant
Pay an accountant to handle your taxes rather than struggling with them yourself. In addition to saving you money, a good accountant will also save you a great deal of time and stress. For them, you’ll need to prepare your accounts, including a folder with the following information:
- An overview of your income and expenditures, along with any outstanding payments
- Your invoices
- Your expenses
- Your bank statements
- Your receipts
It’s up to you to ensure your tax bills are paid by the deadlines, and your accountant will prepare your tax return and file it with HMRC. After the 31 January deadline of that tax year, all accounts must be kept for at least five years.
Keep your receipts
You should save all receipts for things you’ve bought for work, whether it’s a laptop, a chair, printer paper, postage costs, or anything else you incur as part of your business. You can deduct these expenses from your tax bill, so you may pay less tax than you did when you were employed full-time. Organise your receipts by storing them in twelve envelopes, or a folder with twelve separate sections, one for each month, and keeping track of them this way.
It’s more complicated if you’re a limited company
Since you’re a freelancer, we’ve assumed that you work as a sole trader throughout this article. Your accounting will become a little more complex if you decide to form a limited company. In addition, if your profits exceed the threshold for registering for VAT, you will have more obligations. You can use the following official Government resources to learn what you will need to do if you take this route:
- Prepare annual accounts for a private limited company
- Accounts and tax returns for private limited companies
- VAT returns
In the case of a new business owner, accounting can seem like a daunting task. Software simplifies this process, and you will gain a new appreciation for accountants’ work.
Seasoned professional with a strong passion for the world of business finance. With over twenty years of dedicated experience in the field, my journey into the world of business finance began with a relentless curiosity for understanding the intricate workings of financial systems.