As a creative freelancer, you don't get the benefit of a guaranteed monthly salary; you have to rely on clients paying you on time instead, and that isn't always the case.
With cash flow being the lifeblood of your business, how can you keep your head above water when the people you're working for delay payment? And how do you survive when months are slow or unexpected expenses pop up? These essential tips will help you keep on top of your finances.
1. Forecast your money
Before you do anything else, create and maintain a forecast of your cash flow. It can be something as simple as an Excel spreadsheet, but it must show what you expect to earn over the next six to 12 months. Keep it updated every week, and you'll start to feel more in control of your money. If you shake in fear by the very mention of Excel, check out our recommended cash flow tools instead.
2. Establish payment terms
On all invoices, include your payment terms – the standard being 30 days. Make it clear before any new business relationship begins that you expect payment within that timeframe. Not confident a new client will be a reliable payer? Ask for payment upfront, or set payment milestones – i.e. request a deposit of 50% before work even begins.
3. Invoice immediately
As soon as you've completed the work, invoice the client. Not a week later, right now! If you delay sending the bill, you'll delay payment – simple as that.
4. Make it easy to pay
Make it super easy for your clients to pay you on time. Provide your bank details and payment instructions on every single invoice. Ideally, you want to avoid encouraging cheques because these can delay the cash appearing in your account.
5. Offer discounts for fast payment
A great tip is to offer clients a considerable discount if they promise to pay on time every month. It works exceptionally well if you're hired on a retainer basis, as you can request the setting up of a standing order or direct debit.
6. Create payment packages
Want to get paid before work even begins? Ditch the hourly rate and offer your clients lucrative payment packages instead. By wrapping up your services in a retainer product, clients can purchase your time upfront – leaving you with complete peace of mind. Offer bronze, silver and gold packages – I guarantee the client will always go for silver, so price yourself accordingly.
7. Hire help to chase payments
Don't rely on yourself to ensure clients pay on time – you'll be too busy getting the work done. Instead, find someone you can trust to chase payments on your behalf. It will not only give you peace of mind but provide extra credibility from someone who is representing your business.
8. Use automation accounting
Can't afford to hire someone to chase for payment? Today's accounting software solutions are smart and offer automated payment reminders or statements, issued without you having to lift a finger. Yes, they can often seem robotic – which is why you should also keep an eye on things, but they're great tools for busier periods. I've said it before, and I'll repeat it – FreeAgent is the best.
9. Get tough on expenses
Do you need that new software solution? Is a subscription to a trade industry magazine essential? Every month, go through your outgoings and review everything. Is there an alternative, cheaper or free option to your tools? Be brutal and cut costs because money does add up.
10. Get a business credit card
Sometimes, freelancers have to purchase things on behalf of their clients. Something that they can then invoice and get back, but this can often take some time. Keep money in the bank by taking out a credit card for your business – something you pay off every month, but helps you maintain a healthy cash flow when dealing with client expenses.
11. Put money away
You want to be very cautious when lump sums hit your bank account. Yes, you could finally buy that new TV or revamp the bathroom – but what will happen when the taxman wants more money? Or if you suddenly run out of work? What then? Put money away to ensure a healthy cash flow both now and in the future.
12. Dial down the lifestyle
You're working for yourself, and that brings a wealth of benefits – one being more money! Avoid the temptation to buy expensive things and instead dial down your lifestyle. By staying frugal and saving as much money as you can, you won't get yourself trapped on an endless treadmill – and you'll have a much happier life.