You spend hours managing your freelance business. You diligently track your time. You send contracts and invoices to your clients on time, no matter how many projects you are juggling. You do all of this despite being a graphic designer/writer/software developer. You have minimal business training yet do everything necessary to run a successful business.
Your client seems to run a successful business. They have a team dedicated to paying people. And yet, they often seem to lack this simple ability. Chasing payment as a freelancer sucks: hopefully this guide will help you get paid more quickly and easily.
First, why don’t freelancers get paid? Clients aren’t strongly incentivized to pay. There is no criminal law against not paying freelancers. Clients know that freelancers have little leverage. Many freelancers work without a contract, and those that do rarely know how to navigate the small claims court system. Payments normally aren’t large enough to warrant hiring a lawyer or spending days putting a case together. Bad clients don’t pay because they know they can get away with it. Let’s change that.
Write a detailed contract
The one change you should make. With no contract, your chance of recovering payment is near zero. With a strong contract, the chance of payment is virtually 100%. Step one is to find a template contract on the web. Then edit it with the most detailed scope of work you can come up with. The more detailed your contract, the more enforceable it becomes. Use the SMART methodology (specific, measurable, achievable, relevant, time-bound) to set out every component of your project, so that it is clear when you have checked all of the boxes. This will be challenging in creative fields where the output is subjective, but the time spent defining your work objectively will ultimately reward you. For hourly work, include the expected and maximum range of hours to be worked to avoid any surprise if it takes longer than expected.
It is important to include detailed payment and dispute resolution terms. If you require a deposit before you begin work, make it clear. If you have a late payment charge if payment exceeds 30 days – which you should - state it. Be clear that you will withhold the core intellectual property until final payment is received. For dispute resolution, state that you will use an arbitration service such as the American Arbitration Association. This is still an expensive option, but it is much more of a credible threat than using small claims court, and the point is to avoid a dispute at all.
Clients are least likely to pay when they receive a large invoice unexpectedly. They may refuse to pay because they have mis-managed their budget, or simply out of shock. Avoid this by tying your detailed contract steps into milestones of the project, and have a payment associated with each of them. For example, on a two-month project you might charge a 50% deposit up-front, 25% after completion of the first milestone (roughly half-way through the project), and the final 25% on completion. Clients that pay in small chunks will find it much harder to withhold your payment. If they do? You freeze up the work until the last milestone payment is delivered.
This approach is applicable even with work charged by the hour. Break your work into phases either by time (i.e., phase 1 = weeks 1-3) or by output (i.e., phase 1 = first draft). Then tie a payment agreement to these milestones with the understanding that the actual hours worked will fall within a range that you will have outlined in the contract.
Get paid up-front
If the idea of getting paid up front seems laughable, then I ask you: when was the last time you asked for full payment up front? Our research suggests clients are more willing to pay up front than you may think. By the point of sending a contract, your client has determined they want to work with you. If you have truly proven your individual worth to them, then up-front payment should not be a big hurdle for them to clear. If a client seems nervous, ask them about their own cash-flow – you should be avoiding cash-strapped clients like the plague. For a client with cash that is just unused to paying up-front, invite them to call your references so they can verify your reliability.
If that request is denied, then you can return to your fallback – getting paid a deposit. A simple rule to institute is never working without receiving a deposit first. 30-50% is typical, with the lower end of the range more appropriate for longer engagements. A firm stance on this may lose you one in twenty clients, but they are always the clients that are the most stressful to work with, and you will be financially better off in the long-run.
Use an Escrow service
It can be more palatable to a client to pay you up front if you use an Escrow service. The biggest fear for the client is that you will take their money and disappear. An Escrow service like LifeWork Escrowor Escrow.comwill hold the funds on behalf of the client, and release them to you when you have hit the milestones set out in your contract. Your client still controls when funds are released, but you have faith that you will get paid – and much faster – when you produce the high-quality work that you know you will.
Make it easy
As with any process, you can incentivize someone to do what you want them to do by making that thing easier to do. Think through your client’s user experience of paying you: if you’re sending multiple invoices to the wrong person each month it places a burden on your client to decipher the situation and get your money to them. If you include with your invoice a link to a payment platform pre-set up to facilitate the correct payment at the click of a button, you will get your money much faster.
Avoid crappy clients
Clients with cash-flow problems or low credit should be avoided like the plague.When you are discussing a work arrangement with a new client, make sure you interview them. Their responses to questions such as “how do you typically work with freelancers?” can tell you a lot. Doing reference checks (including Google searches) on your clients should be a part of your process.
Even the best clients can be crappy when it comes to payment. The largest enterprises may offer the largest contracts, but they also often mandate 60/90-day payment terms. You should use all of the other techniques listed above to improve the terms, but if you still can’t, the contract is too big to resist, and your due diligence comes up positive, then you should take the contract. But only one at a time. You will have additional cash-flow induced stress from one of these projects, so compliment it with other shorter contracts. You may even use a factoring service to receive more cash earlier if you were able to negotiate higher rates with the client. Stress reduction should not be undervalued.
The area I struggle with the most in my freelance work is knowing when to put my foot down with clients. The fear that I feel when I tell I clients that I require a 50% deposit before I will begin any work, I’m sure resonates with many of you. But in conversations with over 200 freelancers I have learned that those willing to have the difficult conversations and be ruthless in their convictions are always more successful in the long-run.
Decide on your own ‘red-lines’, using the guidance of this article and knowledge of your clients and industry context. Mine are: 1) Only begin work when you have a deposit, 2) Grind to a halt if they don’t pay, and don’t budge, 3) Withhold IP until the full payment hits your account. I’m sure I have more that I haven’t committed to writing but that I practice. What will yours be?
I hope this post has given you some practical tips to improve your freelance life. If you have any comments, any top tips that I missed, or would like further support in your freelance career then I’d love to hear from you at email@example.com.