Managing cash flow is one of the most difficult challenges for any business owner, regardless of their size. Bills may come when you don’t have any money in your account. Clients pay at inconvenient times and worse, they sometimes don’t pay at all. When you’re a freelancer, managing cash flow is extremely important. Without a good system, you can go into debt quickly. Let’s take a look at a few expert tips to make sure you stay in the black each month.
#1 Collect a deposit before starting a project. Some freelancers actually collect 100% of the project’s estimated cost before starting. If you have a fantastic reputation in your industry, you can probably get away with this. Otherwise, a good rule of thumb is to collect 50% in advance. This ensures you’ve at least collected half of the project’s costs and you’ll have cash to work with.
#2 Make your invoices due upon receipt. Many companies are accustomed to working with a net 10 or net 30 invoice. This means they don’t have to pay it for ten or thirty days. When your invoices are due upon receipt it can throw them and their accounting department for a loop. Make sure your customers know your terms before signing on to work with them. Implement consequences if customers don’t pay on time.
For example, add a late fee for every day or week a payment is late. Make sure this is clear in advance so your customers are not unhappily surprised. You can also offer a discount to clients who pay on time to motivate them to pay quickly.
#3 Invoice right away. It may seem like common sense; however, many freelancers wait to invoice. Don’t wait. As soon as you deliver that project, invoice them. Even if there are going to be revisions, make the invoice part of your project delivery process.
#4 Pay your bills at the last possible moment. Again, this may seem like common sense; however, many folks are inadvertently giving away money. Hold onto your cash and earn interest as long as you can. Afraid you’re going to miss a due date and incur late fees? Using automatic bill pay helps you make sure payments are on time and you can schedule them for the last possible day. (You’ll also save money on stamps.)
#5 Reward clients with ongoing projects. When you have a client that has regular work, reward them for that. Set up a discount for regular work – we’re talking a project every week or month here – and agree to invoice them at the end of the month. This way, you have guaranteed cash flow and they get a discount. It’s a win-win.
It’s tough to know when your next paycheck is coming sometimes. By taking a few steps to manage your cash flow and offer incentives for repeat business and fast payment, you help to ensure you never have to use that credit card to buy groceries again.