A Field Guide to Freelancer Finances by FreeAgent - HTML preview

Creating a stormproof invoicing

process

Anna Debenham

I really hate asking for money. Maybe it’s because I’m British, or that I find it weird that people are paying me money for doing something I enjoy, but sending and chasing up invoices is one of my least favourite things about running a business.

Over the years, I’ve refined an invoicing process that helps protect me from non-payment and also reduces the awkward step between doing the work and getting paid. Here’s how it works.

Before you start working

To weather a storm, you need to make sure that your shelter is solid, and this means doing some preparation to make sure an unexpected gust of wind doesn’t blow everything down and leave you shivering.

Credit checks

It’s important to make sure that the organisations you rely on to pay your bills are… well… going to be able to pay your bills. A quick way of assessing this is to check their credit score. In the same way that you can check your own credit score, you can also check another company’s and there are a few different online services that do this. Matt Perkins’ ‘Credit control for freelancers’ gives lots more information on credits checks and setting credit limits in advance.

Payment terms in your contract

To make sure that you and your client are on the same page before work starts, you should include a section in your contract (you do use one, right?) about payment terms. There are a few important things you probably want to specify, such as:

• Whether you’re asking the client for any retainer or deposit before you start working
• If your project isn’t fixed cost, whether you’re going to bill them for days booked that they don’t end up using
• How much you’re billing them over what period of time
• Whether the amount you’re billing is inclusive of VAT or sales tax
• What currency you’re billing them in (particularly important for overseas clients)
• What format of payment you accept (see note about payment methods)
• At what point you will send them an invoice
• What you agree to deliver before and after the final invoice is paid (some freelancers will only make the site live once final payment has been made)
• How many days before that invoice goes overdue
• What you will do if that invoice goes overdue

It’s important that your client understands and properly acknowledges these terms because money is so often the thing that causes disputes.

Note about payment methods:

A while ago, I had a couple of clients who insisted on paying with cheques. This is less common now, but it was a real pain to queue at the bank and pay them in, and there was also a higher fee on my account for paying in a cheque as opposed to a bank transfer. My payment terms now insist on paying by bank transfer. If I ever get a client who wants to pay me a cheque again, I can put in the payment terms that I’ll have to charge them a small fee to cover my costs of paying it in.

Payment terms and when to invoice

By default, I want clients to pay me within seven days of receiving my invoice, but it’s quite rare I can implement that; after some negotiation, my payment terms often end up being 14 days, which is still better than the usual 30. Some larger companies have accounting departments that insist on 30 days and they won’t budge on this, so you might need to make a concession.

This does make cash flow more of an issue, so if you’re in this situation, you could ask to invoice at the end of every week rather than every month so you have a more consistent flow of income. Invoicing (and thus getting paid) regularly will balance out those nerve- wracking feast and famine spikes in your income.

Writing the invoice

First, it’s good to double check that your invoice has the following important information:

• The word “invoice” clearly displayed
• Your company or trading name, with your address and contact details
• The name and address of the company that you’re invoicing
• A unique invoice reference
• A summary of the work you’ve done
• The date(s) that you provided the work
• The amounts you’re charging for each piece of work
• The VAT or sales tax amount you’re charging (if applicable)
• The total amount due

Here are some other tips:

Payment details: Don’t forget to put your payment details on your invoice so your client can pay you straight away - this includes the name of your bank, your account number and sort code if you’re accepting bank transfer payments, or your PayPal details if you’re using that.

Payment terms: It’s also important to add the due date so your client can see when the payment needs to be made by.

Summary of work: Your summary should be really clear so the client knows exactly what they’re paying for. In FreeAgent, I hook my invoices up to my timesheets so I can show details of what I did each day I was working on the project.

Project references: Some clients ask you to include a PO (purchase order) number or the project owner’s name so that their accounting department can see what it applies to.

International payments: Since working for clients in other countries, I’ve also added

my BIC (also known as SWIFT or