Managing your freelance business’s finances is an important part of staying in business. You might have heard of the expression “cash is king”. Well it is.
The typical freelance project is paid on a Net 30 after you send the invoice. This can be a problem. This means that there is a long delay between when you put in the work and when you get paid for it.
Let’s say you invoice monthly. Monthly invoices are a common requirement of mid-sized and larger businesses. Lets say you work on June 1st for a client, invoice on the 30th, and have Net 30 payment terms. You won’t be paid until July 30th. 60 days after you started working for them.
This sucks even more if a client pays late.
I go into this in more depth in The Freelancer’s Guide to Long-Term Contracts but I’d like to briefly cover two levers you have that might help speed up your cash-flow.
Better payment terms
Half of the delay is spent in the Net 30 payment terms. Since the client has 30 days to pay, they’ll probably use that entire time to process your invoice.
If you can convince your client to accept a Net 15, you’ve just speed up your cash-flow cycle by 25%. I’ve had a few clients who have been able to accept this after some negotiation. It works especially well with smaller clients or when you’re working directly with the CEO/CTO/CMO who has purchasing authority.
More frequent invoices
The second half of speeding up your cash-flow is to send invoices more frequently. Instead of only sending one monthly invoice for 30 days of work, you’ll send a weekly invoice for example.
Even with the Net 30 payment terms you’ll still have an improvement because you’ll have invoiced 23 days earlier than before. Which means you should be paid 23 days early too.
The downside of more frequent invoices is that both you and your client will have to do more administrative work. Creating invoices, sending them, processing the invoice, cutting a check, etc. For me, as a freelancer, I’m willing to take that extra time because of the benefits to my business. But it will be more difficult to negotiate that with a client, since it doesn’t help them at all.
One way to turn this into a benefit for your client is if they have an expense account. If your client is paying you out of an expense account or some other “miscellaneous fund” and that fund has a transaction limit, frequent invoices might keep your payments under the radar of the purchasing department. I personally haven’t encountered this but I’ve heard it happening in larger firms.
Cash is King
Getting cash is hand is an important step when freelancing. It’s worth negotiating better conditions with a potential client when you start talking with them.
In my book I go into a few other ways you can accelerate your client payments. It’s important to stay flexible and adapt to the best terms you can get from your client, whatever they may be.