How to make sure you always get paid as a freelancer or consultant

How to make sure you get paid

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 preverbal 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 you’re 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.

  • Freshbooks lets you access your contacts and paperwork remotely, sends invoices by email or post, supports most currencies, and can schedule repeating invoices. The service will even send out late payment reminder emails on your behalf, saving time and stress. Free accounts are available for up to 3 clients, and paid accounts offering additional clients and features range from $19.95 to $39.95 per month.
  • Zoho Invoice offers free accounts for up to 2 users and 5 clients, with paid plans from $15 to $35 per month.
  • Quickbooks Online has plans from $12.95 to $63.16 per month. If you prefer to do it yourself, Microsoft Office comes with some invoice templates, and others can be downloaded from their website.
  • 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!


    17 Comments

    1. Call Management May 29th, 2014

      One solution to getting paid on time from late payers and reduce your stress level is to outsource the “late payers follow ups”. – See more at: http://www.callmanagement.ie/2014/05/do-you-have-clients-who-either-refuse-to-pay-on-time-or-need-a-gentle-reminder-on-a-regular-basis

    2. J Nornu February 25th, 2014

      Thanks so much, mate! What a very informative and helpful article, recommended especially for those who got problem of ‘feel very shy’ to ask for their rightful payment!

    3. Cate Thorn February 2nd, 2014

      This was a very helpful article. Thank you!

      I am an Artist and have done freelance work. However, it has been a bit slow right now. So I turned to Customer Service from home for a company based in Texas. I was going to do a project for them back in October of last year. But that one got cancelled, because they had enough agents. I spent a lot of $$ to get prepared for their project. During a meeting I went to I was informed they were going to pay us for the hours we spent in meeting. After it got cancelled, I was told I couldn’t because it was too little pay. But once I got another project they would add it. I started another project on January 6th. And, was informed we could invoice for prep hours. Which when the time came I did. It was like going to school in this prep. We had lesson and homework. I scored good grades. However, the systems kept malfunctioning on their part. I needed a system to work for me to verify Customers calling. I had to complete 20 hours taking calls in order to make their Client happy. Also, a few days before we were to take calls they told us we had to be wired not wireless. I am wireless, but was willing to get an Ethernet cord to help that. But my system still couldn’t work and other people had the same problems. Now, the trainer told me I can’t get paid for prep hours. That’s BS! I worked hard and that is my time and money they are messing with. What can I do?

    4. jim January 22nd, 2014

      Can I know little about how to start the business

    5. Allen Screen January 15th, 2014

      Great Article! Very Informative! Does anyone use PayPanther to track their time spent working on projects? I use it and it’s amazing! i would definitely recommend it. PayPanther

    6. Chuck December 21st, 2013

      Thanks for the article and video. I reaffirms stuff I already know but have been ignoring. I just got burned pretty bad. In addition to the loss of money/time, there is a pretty big emotional toll.

      As I see it, there are two choices. 1) operate without a contract and accept the cost of getting burned from time to time, 2) operate with a contract and other legal assistance and pay a lawyer. When you factor in the emotional toll, the second choice wins hands down.

    7. Darren McMurtrie December 2nd, 2013

      This has been a massive pain for me. I’m a brand strategist and creative director and have been freelance for just over a year now. Ive always done the 50% upfront, 50% on delivery and have had 2 clients try and negotiate on the second 50%. So this method still isn’t foolproof! So 3 months ago myself and some financial IT wizards have been building a new service (www.promisepay.com) to stop clients doing exactly this. It’s an online payment gateway where clients make payments pay for each milestone BEFORE work starts, then release the payment AFTER work is delivered. If there’s any disagreements, there’ll be a dispute resolution service. Anyway, I really hope it solves this problem and keeps clients honest!

    8. Andrea October 16th, 2013

      I own a Gym for ladies I am doing really good but I have some customers who sign a contract for 12 months and they only pay 6 or 7 month and then they stop coming and stop paying too. Other customers pay 3 or 4 months and dispute their last payment . I sued some of them who owe me more that $1000 but there some that they owe me $300 or $400 and it is not worthy . What should I do.?

      I also use a collection agency called Rapid Respond Services but they haven’t collect anything.
      Thank you.

    9. stephanie samulski August 6th, 2013

      I definitely agree with the information in this article. But, as a client, I want to know what folk’s opinion is on how to be respectful but protect my own interests in consideration of the fact that many freelancers do not produce quality output. When we find a quality freelancer, we don’t balk at any terms or shop around; we are happy, VEEEERY happy, to have reliably good service available to us.

      But when trying out new freelancers, we make sure to establish expectations on the front end, because if we receive unusable product, we don’t feel we should pay for it. In short, it’s hard to evaluate who can truly deliver, and I don’t think the client should bear the responsibility for exploring this question or for freelancers who oversell their abilities. As a business, you have to have some skin in the game too. Thoughts on how we can protect ourselves when trying out new freelancers but still be above board?

      • Carol Crandall November 3rd, 2013

        Actually, Stepahnie- I am glad to see your comment, and have the opportunity to present my own best practices/supply side of the argument which is follows:
        If someone engages work, he/she should always pay for it. Period. Presumably, if this person has done their due diligence ( i.e. sought out referrals, secured estimates so that the price they are willing to pay is confirmed by the bids they are receiving, communicated their desires and expectations, confirmed that the person they are hiring can DEMONSTRATE that they have the right experience, etc.,) then they should have few disappointments. Even still, if the work has been done to the best of the contractor’s ability and it is still deficient, you should still pay the bill. You should also communicate that you are not very pleased with the work, and that they should not rely on you for a referral. This allows the service provider to make a choice to cut you a deal on the price, offer to do it over, or say “I’m sorry you feel this way.” As a client, you are only purchasing the right to use a product that is the result of another person’s time. Time cannot be replaced. This is THEIR skin in the game (to use your words) and you should respect its value by paying for it. The goods you receive in exchange for the service cannot be held to the same consumer standard of goods that are mass produced; you cannot relieve yourself of the risk of being a consumer by returning the item with a receipt and receiving a refund with no questions asked. As the buyer of the work, you need to show that you are good for your side of the relationship. Believe me, no service provider wants to provide work that will not be appreciated: most of them live and die by a good referral. Remember: the reason you are hiring the work in the first place is because you have a need to fill- that is, the problem is YOURS, not the freelancer’s. The service provider/vendor/contractor is filling the need at your behest. Pay your bill, say thanks (or, I don’t think we’ll be working together again), and move on. No one ever looked bad doing the right thing.

    10. Divine Leano May 19th, 2013

      Wow. This is a real cool article. Thank you for answering A LOT of questions. And yeah, fuck the clients who don’t pay independent contractors.

    11. Rajni January 7th, 2013

      Hi

      Thanks for sharing. It is very useful.

    12. J. B. Rainsberger August 8th, 2011

      I started requiring 50% deposit and offering a 5% discount for full prepayment about two years ago, and it has reduced the age of my accounts receivable to close to 0. I find I have the most trouble with large clients who have well-established policies regarding accounts payable, so I simply avoid having too many large clients.

      Just start doing it. Don’t apologise for it. I quote prices by the project, so I find it very easy simply to say, “The price is $30,000. A 50% deposit of $15,000 is due by September 15; full prepayment by September 15 qualifies you for a 5% discount (total price $28,500).”

      If I have any concern about the company’s AP policies, then I ask them as soon as I can. I simply say this: “I’ve had clients whose AP departments needed 6-8 weeks’ lead time to issue payment, and finding that out late usually sours the relationship. I don’t want that to happen to us. Do you foresee any problem with paying by September 15?”

      I also request a copy of the electronic payment notice to show that the money is on its way. European clients tend to have no problem with this.

      I like the article, especially the advice to wait a full week to follow up. I use followupthen.com to help me with that, and use the phrase “routine check-in” to emphasise when I’m not (yet) singling a client out for nonpayment.

      • John August 9th, 2011

        J.B. Thanks for the comment! Great advice.

        • Chubby September 10th, 2011

          Wham bam thank you, ma’am, my quietsons are answered!

          • Alan February 28th, 2012

            I ralely admire your confidence in handling delicate conversations and effectively too. I’m always learning something new from you.Have a great time in New York!

    13. Coyote August 7th, 2011

      Great article!

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