Here’s the deal. Sure, we love freelancing and what we do. But, we do this stuff for money. Dough. Moolah. We are authentic businesses after all.
We provide a valuable service and deserve to be paid for our labors. However, at some point in our freelance careers, usually early on, we learn that there can be a major difference between billing a client and actually getting paid.
Plus, billing can be a stumbling block for some freelancers. Many seem to put it off for any one of several reasons. For some, it’s because they’re busy and too focused on the project at hand. As a result, their billing gets put on the back burner. For others, it boils down to their relationship with money. This seems to be especially true for freelancers in the creative arena.
For the latter, even with great tools such as QuickBooks or Freshbooks, that make invoicing a snap, there can still be a lot of anxiety. They worry about the client balking at their fee, whether or not they got the invoice right or worry about whether they are worth the fee. If that sounds like you, I’d suggest picking up a copy of The Money Book for Freelancers, by Joseph D'Agnese and Denise Kiernan or The Creative Professional's Guide to Money by Ilise Benun. Both are excellent.
As freelancers it's important to master the craft of billing and collecting. It's easier than you might imagine and flourishes with a system in place.
Billing for Profit
Billing begins with knowing the hourly rate for your specific business situation. Whether you charge by the hour or by the project, knowing that number is important for correct estimating. You’ll know the bottom line price you can’t go below without losing money. Losing money is, generally, a bad thing. As luck would have it, I wrote an article about calculating your rate, based on your target salary/draw, overhead and profit. In it, I walk you through the math. You can find it here. You can also use our The FreelanceSwitch Rates Calculator.
Be sure to discuss your terms with the client at the beginning. Also, a rock solid contract is important if push comes to shove.
Do your best to make it easy for your clients to pay you.
Will you have them pay upon completion? Thirds? Fifty fifty? Net thirty and so on. Some clients, particularly larger companies, have set-in-stone policies for payables. Plus, in this less than stellar economy, many companies are stretching out payment times. So, be sure to ask what their policies are. For example, if a company is paying in sixty days and that’s going to totally mess up your cash flow, it might be wise to walk away from the gig, invoice it at the beginning or negotiate some other terms that work for everybody.
Follow proper procedures when it comes to invoicing. Be sure to include the purchase order number, if applicable. One sure way to delay payment is by sending off an invoice that isn’t clear and doesn’t contain all the necessary information.
Do your best to make it easy for your clients to pay you. Consider accepting credit cards. With credit cards, you get your money faster, less the card company fees, and the client can spread payments out over time. Everybody wins. But, to accept them you’ll need to get a merchant account for offline transactions or an Internet merchant account, along with a payment gateway account, for online transactions. Merchant accounts are typically obtained through your business bank.
A merchant account can be tough for a freelancer to obtain, though. A simpler, yet very effective alternate solution is Paypal. It’s a fast and secure method to accept credit cards for your services. With Paypal, you create invoices that are emailed to your client with a convenient “Pay Now” button included. Paypal doesn’t require your client to have a Paypal account. At the time of this writing, Paypal charges 2.9 percent plus thirty cents per transaction under $3000. Google’s Checkout is similar
The Delicate Art of Collecting
It’s a harsh truth, but just because you did the work and sent the invoice, you still might not get paid. That’s not to say all clients are evil and never had any intention of paying you. Sure, there are a few out there, but usually it’s a more innocent problem. The client may be having a cash flow issue. Perhaps they’re not getting paid from their customers. But, probably the biggest reason is a lack of clear communication. It’s a “they said that and you heard this” kind of thing.
Collections are a common business practice to help you get what’s rightfully yours.
When you don’t get paid, that’s when the collection process kicks in. Collection is not a lead pipe or brass knuckle tactic where breaking legs is a negotiation method. Save that for the movies. Collections are a common business practice to help you get what’s rightfully yours.
Begin with a phone call as a friendly reminder a few days after the due date. There’s no need to get confrontational at this point. It could cost you a client and erode your reputation. People talk. There can be many valid reasons for a delay in payment. The invoice may have actually been lost or misfiled. It may need the approval of higher management who’ve been out of town. Or, there may be some questions about your invoice. A phone follow up is the way to address any questions and ensure the invoice got to the right people. Be persistent, but polite. As the saying goes, “The squeaky wheel gets the oil.”
If they still don’t send you payment after a call or two, you’ll need to step up your actions. Consider offering them payment terms over time. Things happen and they may not have the money when your invoice comes due. This is especially true with small businesses. Try to work with them as best you can. A couple of hundred dollars every week or so is better than nothing at all.
If that doesn’t work, consider having your attorney send a letter demanding payment. Unless you’re trying to collect a significant amount, $25,000 or more, suing doesn’t make too much sense between attorney fees and court costs. Your client likely knows this, too. But a well-written letter from your attorney’s office can be enough to open your client’s eyes.
Another option is tapping into a collection agency. But, it will cost you. Collection agencies charge either a flat fee, percentage of what is collected or through a direct sale of the delinquent accounts. Using a collection agency helps to keep you out of the process. This way, you remain professional and the effort to collect is unlikely to erode into a personal conflict. Collection agencies often start with a series of letters and phone calls. They will only use legal action as a last resort.
For smaller debts, you might consider small claims court. It’s a low cost way to make your case, get your day in court and, hopefully, win a decision in your favor. In essence, you’re suing your client. You won’t need a lawyer, either. In fact, many states in the U.S. don’t even allow lawyers into small claims court.
Although small claims court is a place to prove you are owed money from your client, there’s a caveat. The judge can’t force your client to pay up. They can only rule in your favor. A small claims court clerk can help you with garnishing wages or attaching a lien on your client’s home, business or personal bank account.
Before heading off to small claims court, you might consider arbitration or mediation as a method to get to a resolution. These may provide a more streamlined and less threatening way to reach a payment agreement. Arbitration is the most commonly used method for the resolution of business disputes today.
In wrapping up, here are the key points to keep in mind that will help ensure you get paid for your labors:
- Understand your rate and how you came up with it. That will go a long way in helping to justify your estimates, if the need arises.
- Always, always, always use an iron-clad contract. No ifs, ands or butts.
- Strive for clear communication from each concerned party. Address concerns as soon as possible. Poor client/creative communication is one of the most common reasons folks don’t get paid.
- Have the client sign-off at various stages. In other words, have them give you “smaller” approvals along the way. If things go South, you’ll have a paper trail to prove your case.
- Make it easy for your client to pay up. Consider accepting credit cards, Paypal, installment plans, etc.
- If things take a major nose-dive, try your best to remain calm and professional. Take the appropriate formal collection or legal action. It’s easy… very easy to get red-faced angry, but that will only hurt you in the end. Even if you win, people talk and your reputation can be quickly tarnished.
In the end, collection is never a pretty thing. But, you have a right to be paid for your labors. Be persistent, but be professional.