Freelance Cash Flow: Tips for a Happier Freelancing, Part 1

September 16, 2013

Managing the ups and downs of your cash flow can be stressful.

A low cash level leaves you feeling short of breath and worrying if you need to keep accepting low-pay work to fill the gaps or just accept work you don’t enjoy. Either way, you’re miserable when cash flow fluctuates.

Even if your cash level is not that low, making slight improvements in predictability can make drastic changes for the health of your business. You’ll have:

  • ability to be more selective about the work you end up doing (intellectual pleasure)
  • ability to raise your rates even more (extra money)
  • ability to rest when you need rest (less stressful life)

I’ve been continuously freelancing since 2005 and never had a cash flow issue once, so I thought I would share some of my favorite freelance cash flow tips with you!

Careful : these tips work for me — your mileage may vary though; above everything, make sure to take your own context into account!

Build long-term, quality relationships

Surprise! Long-term relationships are good for your cash flow:

  • quality relationships bring mutual visibility and confidence,
  • you and your customer already know each other,
  • your customer already know your bank account number or other payment references,
  • you already know who is in charge of paying invoices,
  • you do not have to sign new contracts every month.

All this makes it easy for them to book you, and makes payments faster and easier in my experience, too.

And when an issue pops up (2 times, I had payments delayed by a week or two), it is easier to discuss the topic openly, since you already have a good relationship in place.

Working a long time for a company and doing valuable work for them means you are more likely to build or maintain more useful parts of that company gradually, which brings you more work.

I can definitely recommend building such relationships as much as you can (I work mainly for 2 customers currently, and these are both long-term relationships).

Make sure you get paid early “by design”

When setting up a new contract and when emitting invoices, make sure to explicitly mention that payment is due when the invoice is received (net +0 payment).

My current rules are more or less:

  • for projects with estimates, 20% is paid upfront, then hours are paid at the end of each month
  • for regular monthly maintenance, an invoice is sent at the end of the month
  • quotes, estimates or analysis are paid work (I’ll elaborate on that later)

Even better, some freelancers use a pre-paid approach.

I always avoid companies who mention they need 30 days to pay you — a red flag in my opinion.

There is no reason to wait many days for payment after doing the work — especially since you are such a small company and that doing so could put yourself at risk.

Avoid fixed-price projects

Fixed-price projects are dangerous especially for small companies.

A third-party bug can raise a project price by 40%…

Would you want to support that extra cost alone?

If you do so, then the next time you are asked for a quote, you will likely have to pad your estimates quite a bit to earn back what you should have earned in the first place.

This is a lose-lose situation, because it introduces doubt for you, and extra costs for your customers.

If you are just getting started, try to bill by the day instead.

If you are more experienced with freelancing and have enough cash to handle it, try yourself at value-based pricing.

I used to bill by the hour; today my customers book 5-hour sessions (one available per day).

In all cases, avoid a situation in which you need to wait for approval before getting paid.

Why? Because some companies are so unorganized that this could take months to come (even if your work is perfect and if this is acknowledged by a part of the company).

What’s next?

Read part 2 now, focusing on invoicing.

Thibaut Barrère (WiseCash founder)

@thibaut_barrere

thibaut@wisecashhq.com

Thanks for sharing this article around!


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