One of the nice things about freelance work is not reporting to anyone – it also means there’s no billing department to call, and no payroll department to cut you a check if clients don’t pay their invoice.
If you work online, work from home, or do any kind of contract work, it’s vital to have a plan in place to make sure you’re paid for the work you do.
DISCLAIMER: The article below is relevant to any person or small team that does work for hire, from pure consultancy, graphic design, to writing or marketing. While I’ve done my fair share of contract work, I am not a lawyer, and I don’t pretend to be one on the internet, so please hire a lawyer to advise you on any of the information below.
Do some detective work
When a potential client approaches you about a project, it’s perfectly within your rights not to respond right away. In addition to giving you the time to mull over pricing and the time needed to complete the assignment, search for mentions of the company online. If a Google search finds another freelance worker telling a billing horror story about your prospective client, that’s a definite red flag.
Consumer reviews can give you an idea of the company’s dealings in general, so check the Better Business Bureau and other review sites for significant complaints. The company’s own website can give you information like how long they’ve been in business. If the information you find researching the client makes you uncomfortable about the transaction, ask for payment up front in whole or in part (a 25 to 30% deposit is not unheard of for project based work – suggestions below).
Get it in writing
If you start a contract without a contract, you client will have you by the proverbial balls and can leave you in the dust at the drop of a hat. It may piss people off but it’s all about respect, if you start work without a contract you’re employer isn’t respecting you and frankly you’re not respecting yourself.
Remember that contracts are there to protect both parties and if somebody isn’t willing to sign one it’s because they’re trying to pull a fast one. A ‘good’ lawyer should be able to build you a customized boilerplate contract template for your business for a couple hundred dollars. If it needs significant edits you can usually have that done for a couple hundred bucks as well.
Sending a contract for a client to sign and return serves a few key purposes. First of all, it establishes you in the buyer’s mind as a business professional, and sets a tone for the rest of your working relationship. It also helps by outlining the specific expectations and parameters of the assignment, so neither party can say later they were misunderstood. A contract should also specifically address the terms of payment, and serves as proof of your agreement.
A quick online search for “contract template” pulls up many good ways to start, you could also rework a ‘work for hire agreement’ from one of the many freelancing sites around by rewording a standard contract to include your project’s variables. The importance of being clear and detailed in your contract cannot be stressed enough. In addition to giving you some legal recourse in the event of nonpayment, a well-worded contract assures that both you and the client are on the same page.
The billing section of the contract should include a payment schedule with exact dollar amounts (including currency), dates, milestones for payment and a total. If you are being paid from overseas, it’s important to note who will absorb transaction fees). Signing the schedule will help the client remember to make their payments and be a final checkpoint in the case of miscommunication.
Offer an Early Payment Discount. You may also want to include an early payment option with an appealing discount – between 5 and 10 percent is typical. This can be amount payable at the completion of the job and is often a good idea for large jobs, or if you’re working for a company where you invoice might otherwise go unnoticed.
Use the contract as an opportunity to set up additional guidelines to protect yourself. If possible, specify that you won’t be releasing a final product until you’ve been paid in full for a project. For example, if you are doing design work, don’t supply the raw files opting for watermarked previews instead, for programming, you might provide an adhoc build or executable, but not the source code. For some types of work, you can show progress and final drafts on a password-protected section of your website clients can log into, which can help make project milestones appear more significant in the buyers eye.
Another helpful clause to include is that clients receive creative rights to the work once you’ve received payment. That means if payment isn’t received, you’ll still own the rights – pointing that out can go a long way toward coercing a forgetful client to pay up.
Bill up front
Many freelancers require a down payment before a project begins as a rule. A down payment establishes trust in the transaction for you and the buyer – an industry standard is 30 percent (but it depends on who you are and what sort of work you’ve done previously). While it can be difficult to begin doing this if you don’t already, it is worth the trouble.
It can be disappointing for a buyer to balk when you mention a down payment, but you have to wonder whether they intended to pay at all. Although a few prospective clients may decide to work with someone else, you won’t waste time working for deadbeat buyers, and you’ll have a sense of security. It’s up to you whether you should choose to continue this practice once you’re comfortable working with someone.
State your terms matter-of-factly when discussing payment with new customers, and it will become second nature. A line like, “The payment schedule is 30 percent up front and 50 percent half way and 20 percent when the completed project is delivered,” added to an email will suffice. Longer projects may require a few milestone payments, so be sure to set specific dates and amounts for them.
What you do at the outset of a business conversation determines, in large part, the tone of the entire transaction.
Be clear about how and when payment will happen, and use numbers – either percentages or dollar amounts. It’s vital to clear up any possible misunderstandings about billing at the outset. Later, if you need to contact a client who hasn’t paid their bill, it’s helpful to be able to quote earlier conversations.
Before you’ve signed a contract or started a project, get the email address and telephone number of the person responsible for paying you. If you’re working with a large company, ask for a contact in accounts payable. If there are any snafus with billing, this will be crucial information because this person can update you on the status of your invoice and let you know when to expect payment.
Figure out what you’re worth and track your time to find out your hourly rate
Consultants rarely track their time properly – by tracking your time you and the company that has hired you both have a clear understanding of exactly what you’ve done and how you’ve done it. This is crucial if you are charging by the hour, and will help you understand what your time is actually worth.
If you are jumping between projects, or phone calls, it’s easy to lose track of all the 15 minute blocks you’ve spent on a project. It’s a great idea to use software like Time Doctor (we developed this product!) to track your time spent in front of the computer.
Most time tracking applications also have a mobile component, which you can use to record time spent off the computer, for instance at meetings or off site work. Most time tracking apps will also have reporting features which will make it a breeze to tally your hours and invoice your clients at the end of a project, or work period.
Use professional invoicing software
While some clients may not require an invoice, it’s a good practice to send them regardless. While an invoice may not be needed, it’s a simple way to remind a buyer payment is due. Specify the time window for payment on the bill. A polished invoicing system not only helps with collecting payment, it also lends your service some credibility.
Send an itemized bill promptly – just like you wouldn’t want a client to take their time mailing a check, don’t drag your feet on sending an invoice. When you send a new client a copy of the contract, include an invoice for the down payment if one is required. Once a project is complete and you’re notifying the buyer that they can view their final product, attach an invoice. In your initial conversations when you’re hammering out the details, you can let prospective customers know when to expect invoices and how long they’ll have to pay them.
Make it easy for your clients to pay you
Do everything within your power to make it very simple for clients to pay you. Set yourself up to accept credit card payments – in addition to opening up a broader reach of customers, you won’t have to wait for a check to arrive in the mail. Paypal offers free merchant accounts to assist with the process.
If you arrange your projects through online outsourcing sites such as Odesk or eLance, invoicing is handled automatically, and in many cases, the payment has already been placed in escrow and is guaranteed. Each site takes a small commission or fee from the total payment, but for many the peace of mind is worth it.
Include all the information a buyer could possibly need on your invoices and email communication, like your name, address, phone number, email address, project name, reference number, payment amounts, tax information and purchase order number, if one has been assigned.
If conditions change, outline it in the contract
Changes will happen… in every job you do. People change, project goals change, contracts get bigger, contracts get smaller. You should address these changes in the contract. Ideally each change should cost the company or client money and the more changes made, the higher the cost of those changes. This not only stops changes from occurring later but usually motivates your client to give you incredibly clear instructions on the project which will only help you get your job done.
Know when to stop
Stay on top of your bookkeeping, and if certain clients aren’t paying their bills, politely let them know service will be discontinued. While this only works for ongoing projects, it will prevent a customer from racking up a debt they’ll never be able to pay. In other words, it prevents you from pouring time and effort into a project you won’t be compensated for.
Have a letter written, saved, and ready to send for this circumstance. Using the same letter every time will take away some of the situation’s stress and allow you to respond quickly. After a week of nonpayment, a short reminder letter is appropriate. Within this timeframe, the bill might have slipped a client’s mind or there may be a holdup with their financial department.
Five days after sending a polite reminder, pick up the phone and call the client if they still haven’t paid. You should have obtained contact information for the person who would be paying you at the outset – this is when you use it. Ask your contact about the status of your invoice, and be sure to get a specific date when they plan to send payment. If no one answers, leave a message and follow up with email. Your communication should show rising levels of concern as time goes by, but maintain a professional, objective tone.
Trust your instincts
If you just flat-out get a bad feeling about a prospective client, trust your instincts. Some things to watch for are comments about past working relationships, or indifference about the pricing of your work. Also be on the lookout for an unhappy customer – if dropping hints hasn’t worked, they may try with-holding payment to gain leverage. Address and resolve concerns as they arise to ensure you’ll be paid.
Don’t rush a client’s decision when you’re in the initial stage of the transaction. If someone isn’t sure what they want and you pressure them, they may show their resentment by deciding not to pay. Respect a potential customer’s need to mull over a decision using whatever time frame makes them comfortable.
If you’re unsure about how to approach a particular situation, there are plenty of websites where freelance workers get together to talk about their day-to-day challenges.
By making some preparations and being clear with clients about how payment will work, you’ll know that all your bases are covered, and you’ll eliminate misunderstandings. However, it’s impossible to foresee and prepare for every possible outcome, and sometimes you may have to deal with a non-paying client.
After taking the advice outlined here, you’ll be able to clearly show in writing what was agreed upon and prove that both parties consented, and a little leverage goes a long way, especially if legal action becomes necessary.
In conclusion, if you regard yourself as a professional then you and the companies you work for should treat you that way. Have a clear understanding of what you’re worth, what you will do for your client and when/how you will be paid.
The following video, featuring Mike Monteiro is also essential viewing for anyone who is an existing consultant, contractor, or those who hope to do any sort of contracting work in the future. Enjoy!