The Finance of Freelance
The business aspect of freelance can often be the most burdensome; worrying about financials, marketing your own brand, complete client management, and more can leave you in the dark.Those thousands of little details can be not only distracting but extremely frustrating for someone who wants to focus creating stellar design.
Be smart about money, and you’ll thrive; ignore your basic financial duties as an independent professional, and you’ll be out of business before you even got started.
Here are some simple tips for managing the finance of freelance. From managing expenses to collecting payments from clients, the administrative side of your business will quickly become just as important as the actual designs you create, which can be a hard pill to swallow, especially for someone like myself, who would much prefer spending his time focusing on developing creative.
Open a separate checking account
Keeping business expenses separate from personal expenses should be step one for every freelancer. The day you start freelancing should be the day you open a business bank account. All payments from clients and all business-related purchases will come from this account.
A separate account is a great way to keep track of money going in and coming out of your business. That, and it makes it easier to report your income to the tax man at the end of the year.
Of course, staying in business means you’ll need more money going into the business account than coming out of it. And that means you’ll need paying clients. This invoicing guide from the folks at Xero is a great place to learn invoicing best practices if financial organization is not yet your forte.
Proposal + Signature + Statement of Work = Getting Paid
To ensure you get paid for the work you do, you’ll need to create a legally binding agreement for every project. I cannot tell you how many people I know who thought simple trust on the other end of a handshake (virtual or otherwise) would ensure payment. Please, for the sake of your sanity, get everything on paper and signed before moving an inch forward on any project.
Sadly, not getting paid within a reasonable time frame might be the freelance designer’s most frequent lament. That’s the bad news. The good news is that not getting paid on time is a problem you don’t have to have – at least not very often.
Every time you talk to a client about a new project, be sure you send a proposal that includes all of the following:
• Project description
• Time frame for completion
• Itemized price list
• Total price
• Time frame for payments
• Signature line
Then don’t begin the work until they sign. If you include a line somewhere in the proposal that converts the document into a statement of work (SOW) when a client signs it, even better. Now you’ve got a legally binding agreement that guarantees you’ll get paid at a specified time after completing a specified amount of work.
Encourage timely payment
So, your payment requirements are outlined in the SOW. This means you’ll definitely be paid on time, right?
Not exactly. Stuff happens. People forget. One way to combat this forgetfulness is to offer a discount. The “1%/10 net 30” discount is a good one. It means you’ll give clients a 1% discount when they pay within ten days. Otherwise, payment is due after thirty days.
If, like many designers, you cringe at the thought of offering a discount, you should try using an invoicing or accounting application that sends a reminder when clients don’t pay by a certain date. Automating this system after you get comfortable will definitely help you focus on your actual design work.
Might such reminders catch the client off guard? Perhaps. But you’re in business to make money. If they agreed to pay you, you have every right to be paid – on time.
What are some key things you factor into your financial freelance practices? What works best for you? Let us know in the comments below!