One of the most stressful things about being self-employed is managing your cash flow. This is especially difficult when clients don’t pay you on time. What can you do to make sure that your invoices are handled promptly? And if a client is late, how should you address it, especially if you want to work with this company again? Is there ever a point at which you need to involve a lawyer?
What the Experts Say
When freelancing is your primary source of income, you have to be meticulous and organized about keeping your books, according to Jon Younger, the founder of the Agile Talent Collaborative, a non-profit research organization and the coauthor of Agile Talent. “If you’re not disciplined and rigorous about getting paid, you will not succeed,” he says. “It is a critical aspect of your reputation.” And yet, even if you do everything right, clients can still be frustratingly late with their payments. Over 70% of freelancers have trouble getting paid at some point in their careers, according to research by the Freelancers Union, the non-profit group, that promotes the interests of independent workers. “When you’re on your own freelancing for a big company, there is a fundamental power imbalance,” says Caitlin Pearce, director of advocacy and member engagement there. So if your paycheck doesn’t arrive on time, “You think, what did I do wrong?” Here are some strategies to help you run the, ahem, “billing department” of your freelance business.
Do your homework
The best way to ensure you get paid in a timely manner is to only work for reputable, well-funded companies that treat freelancers with dignity and respect. This requires due diligence, says Younger. “Before you respond to a request or knock on a door in a marketing capacity, you need to establish that the company can pay you and will pay you,” he says. “You need to find out if they’re honorable, scrupulous folks, or if they’re the kind of folks who will invariably find a ‘problem’ with your invoice.” Pearce recommends talking to other freelancers who’ve worked for the organization about their experiences. Inquire with the company’s full-time workers, too. “Ask about the corporate culture,” she says. “ How it treats employees is a good indicator of how it treats freelancers.” The bottom line: Don’t work with clients who have a bad reputation.
Next, you need to consider how you will bill your clients. There are many ways to go about it and “there are pros and cons for each,” says Younger. Choosing to be a “truly independent worker” and handling all the invoices on your own requires more bookkeeping — and potentially more headaches — but all profits go to you. (Thankfully, there are numerous tools and apps that automate the process, including: And.co, 17 hats, and justtelljulie.) On the other hand, being part of an “online talent platform that connects buyers and sellers” — such as Jobbatical, Business Talent Group, Upwork, or Toptal (where Younger is an advisor) — means less legwork and less paperwork because “they collect the money for you”; however, these platforms also take a cut of your earnings. Regardless of what you choose, it’s smart to seek out the advice of an accountant from time to time, says Pearce. “Most freelancers do not use accountants for bookkeeping,” but instead, as “periodic consultants.” They “help you prepare taxes, make sure your costs are under control, and ensure your business is structured properly.”
Get it in writing
Before you start working on an assignment, you need a contract that lays out the scope of the project, the payment terms, and enumerates the expectations for both sides. “Don’t believe in a handshake,” says Younger. Informal agreements are the source of almost every payment problem, so be sure “to get everything in writing.” For small projects, an email chain will often suffice, but for longer engagements, “it is worth working with a lawyer,” says Pearce. Most freelancers have a standard template contract that they alter for different clients. “When you can, work with your own contract,” she says. “You know what’s in it, and it has terms you can live with and negotiate from.” The Freelancers Union has several templates on its website as well as an app that connects freelancers with attorneys who represent independent workers.
Understand your client’s payment cycle
It’s also important to talk with your client about its “payment schedules and policies in advance” of starting any work, says Younger. Find out how its fiscal year runs, how long it typically takes to process invoices, which days of the week it cuts checks, and how it pays its contract workers. This information helps you better manage your monthly cash flow. Pearce recommends you “try to get as much money up front” as possible. “A deposit of 30-50% of your estimated fee is acceptable in many industries,” she says. Another tip: “Make sure you have the name and contact details of the person in finance with whom you’ll be dealing with,” says Pearce. This way, if there are delays, you have someone to call.
Invoice early and often
Regardless of your client’s payment terms, Younger recommends establishing your own billing cycle that’s frequent and predictable. “Bill on a weekly basis or every time you finish a bit of work,” he says. Billing often is “a signal that you consider your time valuable.” For longer-term projects, Pearce suggests invoicing at pre-determined “milestones along the way” so that you are guaranteed “payment at certain points over time.” Milestone payments not only help you manage your cash flow, they are “also a tool for communication,” she says. “They make sure you and your client are both aligned and satisfied.” Whatever you do, don’t agree to terms that involve your getting paid only upon the full delivery of the work. “You don’t want to work for three months on a project only to have the client say, ‘I hate it. And I will only pay you for 50%.’”
Establish your professionalism
Earning your living as a freelancer requires that you “treat yourself like a business,” says Pearce. Don’t do slapdash work; don’t “forget” to invoice, and don’t be careless in your communications. “Getting paid is contingent on the quality of your work and the quality of your relationship with your client,” says Younger. “If you’re mailing it in, difficult to reach, or hard to deal with, that will affect your ability to make money.” On a related note, don’t work for free. “A lot of companies are fishing around these days for free work on the assumption that your working for them will help you more than it realistically will,” he says. Remember this any time you’re “invited” to give a free webinar or moderate a panel gratis. “Talk plainly and in businesslike terms” about your fee. “Establish the value of your work.”
If your client is ever late with a payment, “you have to be vigilant about following up,” says Pearce. “If you’re vigilant on your end, it sets expectations on theirs.” If you’re following up and no one is responsive, “escalate to a phone call or go to the office in person,” she says. It’s much easier to ignore an email than it is to ignore a human. Be persistent about seeking payment, advises Younger. “Don’t walk away, and don’t give up,” he says, “Work your way up the food chain and take it to the top” of the executive leadership if you need to. Your emails and calls about late or missing payments serve as documentation of your efforts to be paid. Use that paper trail to ask, “What’s the deal?”
Hire a lawyer
If you’ve tried everything and the client is still not paying, it might make sense to engage an attorney. It’s not a straightforward decision, however. “Mostly it’s a cost-benefit analysis” that involves calculating the amount that’s owed you, your odds of success, and the hassle of hiring — and paying for — a lawyer, says Pearce. A new, first-of-its-kind law in New York City gives freelancers a ray of hope. The law stipulates that for jobs paying $800 or more, freelancers must be paid either by a specified date or within 30 days of completion. The other big component of the law provides recourse for instances in which clients fail to pay. “If it goes to court, the law mandates double damages and attorney fees be awarded if the judge rules in the freelancer’s favor,” says Pearce. She adds that the Freelancers Union is “working on getting the law passed nationally.” At the very least, report your former client to the Better Business Bureau.
Principles to Remember
- Your research. Find out how well funded your client is and, to the extent possible, check if there are any financial red flags.
- Bill on a regular basis, and for longer projects ask for milestone payments; they help you manage your cash flow and ensure you and the client are aligned.
- Consider pursuing a settlement in court if your client fails to pay you.
- Work informally. You need a good contract that lays out the scope of the project, the payment terms, and ensures that expectations are clear on both sides.
- Be late or inconsistent with your invoices. Make use of tools and apps that automate the process.
- Be lackadaisical about following up with your client about a late payment. If the client does not respond to emails, visit the office in person if possible.
Case Study #1: Be vigilant about following up and seek legal advice when needed
Michael Lopez, a freelance copywriter specializing in the health and wellness sector, knows all too well what’s it’s like to get stiffed by a client.
Last year, he agreed to do web copy overhaul for a drug rehabilitation company that had a network of treatment centers. He had done smaller jobs for this client in the past but the new assignment was much bigger. This project was slated to last two months, and it represented “a good chunk of change” for Michael.
He finished the job and submitted an invoice. He didn’t hear back from the company, so a week later he followed up with an email. No response. After two weeks, he followed up by phone message. Still no response. “After four weeks I followed up with another call and email and was told that they were working on payment and reviewing the work,” says Michael. “[They also told me] that they didn’t feel they would use the deliverables so they were not sure if a full payment was fair.”
He was surprised, angry, and annoyed. “I went through all the stages of grief,” he says. “I eventually ended up feeling sad and disappointed in myself. Yes, they were in the wrong, but there were a lot of things I did wrong as well.” For one, he worked without a contract. “A contract was something that I knew I needed, but I hadn’t been able to put one together,” he says.
Fortunately for Michael, his roommate was an attorney. “I’ve always been aware that, in the absence of a contract, an email chain laying out when deliverables and payments are due is enough to prove in court — if you need to go that route — that you are owed funds.” His lawyer/roommate sent a letter to his client that “essentially demanded they pay or suffer other legal action,” recalls Michael.
One week later, the client issued an apology to Michael and released funds for payment. “I don’t think it was worth fighting for them,” he says. It was a relief. Not long after that, Michael availed himself of the tools from Freelancers Union and Legal Zoom to create a template contract for his future assignments. He describes what happened with the drug rehab company as a “harsh” learning experience.
“I’ve since updated my contracts, and I have a strict payment policy in place now,” he says. “If a client doesn’t want to adhere to it, then I almost never work with them. It’s part of qualifying high-quality clients.”
Case Study #2: Understand your client’s accounts payable process and use it to your advantage
Over the course of her 12-year career as an independent event planner, Vicky Choy says she has always been paid for her services — but not always on time.
She recalls: “While working for one of my first corporate client I learned that the accounting department only cut checks once every other week and only on Thursdays. I would wonder why I wasn’t receiving payments on time. So finally, I asked. If I had sent an invoice on a Friday after accounting had just cut checks the day before, I would have to wait two weeks for them to cut checks again.”
It’s been an education, and over time she’s mastered the process. Vicky has a standard contract that she developed with the help of an attorney. She makes adjustments and alterations depending on the client and the event. The contract lists the project milestone schedule, the payment due dates, and the payment terms. In addition, the contract contains a “stop work” clause that gives her the right to stop performing work for a client until all payments are up to date.
Her early experiences with late clients also prompted Vicky to start using Quickbooks, which enables her to receive payments via e-checks and credit cards and has resulted in on-time payments.
“I like it because it keeps all my accounting in one place, and I don’t need to use different software for the same process,” she says. “As a micro-business owner, the more time I can save doing overhead work, the better.”
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