Freelancers have become an even larger part of the small business population since the great recession of 2009. According to a 2014 study commissioned by the Freelancers Union, some 34 percent of the total workforce is independent workers, or freelancers. That number is expected to rise to nearly 50 percent by 2020. Many large companies who traditionally hired workers, now subcontract to freelancers, saving the company overhead for items like space, technology (computers, cell phones, printers, etc.) and benefits packages including health insurance, vacation and holiday pay. There are upsides to freelancing as well. Freelancers can set their own schedules, pick and choose projects and often experience greater creative freedom – but at a price. As more companies struggle to meet their own financial obligations, freelancers often end up on the bottom of the accounts receivable pile waiting 60 or 90 days or more to be paid.
Steps for improving your bottom line.
Freelancers often send an invoice and wait. While it may feel like much of the accounts payable is out of your control, there are steps you can take to improve payment frequency and the amount of dollars clients are paying you.
Contracts and deposits are your friends.
Rather than performing the work first and billing after completion, send a contract and initial deposit invoice prior to any work commencing. This works on many fronts. First the client will have a much clearer understanding of your relationship, when to expect work and when they will need to pay you. Secondly, there will be no doubt about the payment terms including any late payment fees, because you outlined them in the contract. Having a specific contract that covers each step of the project will also help to keep the project on time and on budget. Freelancers also face changes of scope on an almost daily basis. Instituting change orders is a great way to ensure that the scope of work and costs don’t exceed the initial project’s goals. How many times has a client stopped a project part way through making it nearly impossible to invoice for the work completed? Requesting an initial deposit, or regularly scheduled payments throughout the life of the project will help improve your cash flow while also keeping the client committed to the project. If the scope or goals do change, at least the client will understand that there is a process for that and know what to expect from you.
Take credit cards.
Clients may have the same cash flow issues you’re facing, but if you provide several different options for payment, odds are that you will see an increase in timely payments. Only a few years ago, credit card processing was only for larger companies, but with the advent of handheld card reading devices like Square, taking credit card payments is easy and cost-effective for any size business. Initial deposits, scheduled payments and final payments can all be set up in advance and automatically charged to your client by your accounting software, too. That way, you can spend more time working and less time processing invoices and payments.
Do your homework.
Consider if you were a financial lender and a client came to you to borrow money. You certainly wouldn’t give him thousands of your hard earned dollars without a contract outlining when he would pay you back. Nor would you just hand over the money without some type of credit check or personal history to ensure that he was credit worthy. Just because you are an independent contractor shouldn’t mean that you hand over your time and talents without the same scrutiny. Taking the time to do a little homework on your clients’ credit history will prevent you from unwanted financial surprises down the road. That doesn’t mean that surprises won’t still happen – they will.
Clients are business owners, too. Sometimes they need a helping hand just like you. “It’s important to consider each client individually,” says Van Ballantyne, owner of Counting House Associates in Greenland, NH. “Personal relationships are so important for small business owners,” he continues. “You may want to sit with your client and discuss a new payment strategy to help them over a hardship. In the end, you may achieve your goal of keeping that client and saving the relationship, too.”
To learn more about how you can improve your bottom line and strengthen your business’ financial position, talk with a Small Business Advisor today.
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