Disclaimer: Please note that this article contains general legal information and doesn’t contain legal or tax advice, and isn’t intended to constitute legal or tax advice.
As a small business owner, late payments can be a huge source of stress, often leaving you little recourse but leading to a lot of wasted time and energy. Even one late payment can become a financial disaster and result in you taking on unwanted debt.
Don’t let this happen and mitigate your freelance business risks. In this article, you’ll find a simple but highly effective procedure to prevent overdue invoices. Get paid on time for your freelance work!
How to Get Paid on Time as a Freelancer & Prevent Overdue Invoices
1. First Freelance Due Diligence!
| New Client Verification Basics |
|---|
| Client’s Website |
| Client’s Information in the Official (Company) Register |
| Client’s Online Presence (SM etc.) |
| Your Contact’s (And Senior Staff’s) Online Info |
| Written Contract |
Although it’s basic, the best and most effective way to make sure you get paid on time is to only work for trustworthy individuals and legitimate, well-funded companies which treat other parties with respect.
Find out how to avoid scam freelance clients and exercise freelance due diligence. Implement a few simple measures and learn which red flags to pay attention to when accepting a new freelance client to verify that they can and will pay you (or at least increase the chance!).
2. Always Know Your Freelance Client!
You must have the right information on your clients such as their full legal name, registered office, contact info, and identification/registration number. You need the correct client’s info to verify if the client is legitimate, sign a contract, issue an invoice, and collect payment.
Getting to know the people who pay you and establishing a good relationship with them can also positively impact your bottom line. Being on good terms should simply make it harder and more embarrassing for them to fail to pay you or ignore your communication.
If you’re taking on a bigger client, find out how their fiscal year runs, how long it typically takes to process invoices, and which days of the week or month they usually pay invoices. This way you’ll know when your invoice should be with them to be paid on time.
Here you’ll learn how to invoice for your freelance work and snag a free downloadable invoice template to make invoicing your clients even easier.
3. Get Yourself a Solid Contract With Payment Terms
The contract for your freelance work should set out your payment terms, including when the payment is due, or overdue, and the consequences for your client in case of late payment.
Your freelance contract must protect your freelance business’s interests, be consumer-friendly (both you and your client have to understand it), and be transparent.
A solid written contract leaves no room for ambiguity or misunderstandings and you can always use it as a reminder of the terms that your client agreed to. In the worst-case scenario, the written contract will provide evidence in the event of a dispute.
Start With a Proper Foundation!
If you don’t want to do unpaid extra work, endless revisions, or simply want to be paid on time, you need a suitably-written freelance contract.
Learn how a proper freelance contract protects your freelance business, and what to pay attention to when entering into an agreement with your freelance clients.
A solid contract also sets out a proper framework for your freelance relationship with your client when determining your status as self-employed. Learn when a freelancer becomes an employee, and check if you’re potentially engaged in false self-employment.
4. Early Payment Discounts – Bonuses for the Early Birds
Does your freelance business struggle with cash flow due to late payments by clients, even though fast payments are crucial to you and your freelance finances? You could consider introducing benefits that encourage faster payment by your clients within your payment terms. For example, a discount of 2% of the full price if payment is made within 14 days of the date of the invoice.
It’s crucial you consult with your accountant about the impact of early payment discounts on your freelance business and how to calculate them properly. Remember that the terms of an early payment discount should be clearly stated both in your freelance contract and on all invoices to avoid any misunderstandings.
The offer of a few percent cash discount for early or on-time payment may be all the encouragement some of your clients need.
| Advantages of the Early Payment Discounts for Freelancers | Advantages of the Early Payment Discounts for Your Freelance Clients |
|---|---|
| Maintaining positive cash flow. If you’re experiencing cash flow problems, offering a small discount to clients who pay quickly should help, for example to pay your own bills on time. | Saving money. Even small discounts add up over time to save your client a significant amount of money. |
| Motivating your clients & preventing late payments. By offering your freelance clients an incentive to pay you sooner, you also reduce the time spent chasing down their payments. Time is money – it might be better to offer a small discount, but save on chasing overdue invoices. | Building a good relationship with your freelance business. The sooner your client pays you, the more likely you will be to work with them in the future. |
5. Deposit And Other Milestone Payments
Deposits and milestone payments can be another effective strategy to consider for getting paid on time as a freelancer. Your client pays you in advance for part of your freelance work and/or pays at certain points throughout the project. This minimizes some of the risks of non-payment at the end of the project.
Especially in the case of a major, long-term project, consider implementing a predetermined milestones payments structure in your contract so that you’re guaranteed to be paid at certain points over time (for example once a month) and that you can pay your bills.
Structuring the payment terms for your freelance project can be beneficial to both you and your client. It ensures you receive payment for the biggest parts of the project and maintain positive cash flow. It also benefits your client by breaking down the fee into smaller manageable amounts.
The way you structure your payment depends on the freelance work you’re doing and the size of the project. It can look like this:
- Deposit milestone – payment up-front before you start the project to verify if the client is trustworthy and solvent.
- Delivery of the first drafts milestone.
- Delivery of the amended drafts (after first revisions) milestone.
- Delivery of the final project milestone (final design, the launch of a website, etc.).
6. Late Fees for Late Payers
You can charge interest on payments received after the invoice due date if your client is late in paying for the goods or services you provided. However, it’s important to note that some states can have usury laws limiting the percentage of interest that can be charged. Late fees can be a great motivation for a client to not let your invoice slip through the cracks.
In general, late fees are standard practice in many industries.
The contract you enter into with your client must clearly state when and what late fees you will charge for late payments.
7. Invoice Reminder – Friendly Request for Payment
Create and schedule reminder emails where you include:
- The invoice,
- Project name/number,
- The amount owned,
- A friendly and official request for payment,
- Agreed-upon terms of payment such as late fees etc, if applicable.
Reminding your freelance clients that payments will be due shortly or are already due is good business practice and shows you’re transparent.
8. Early Termination Clause in the Event of Non-payment
You can also include termination clauses for non-payment in your freelance contract. This will allow you to terminate your agreement early if the client fails to fulfill a payment obligation or other specific duty or demand. Consider specifying that you’ll keep ownership of your products until they’re paid for.
For example, in industries such as construction, the right to stop work clause is very common where in case of non-payment the contractor can stop the work until payment has been received.
When tailored to your freelance work and industry, clauses included in the contract can be a powerful way to speed up payment. The more detailed the clauses in your contract are, the less room for potential misunderstandings and disputes. Without clear contract language just stopping your work is a gamble that might even constitute a breach of contract or potential liability on your side.
You can check out our standard operating procedure on how to quit a freelance client with a free template inside to avoid legal and financial consequences.
The best way to protect your freelance business is to communicate clearly with your client, send invoice reminders, follow the correct procedure stated in your contract, and document everything.
Check Out Our Free Fee Calculators!
See how much PayPal, Fiverr, or Stripe will subtract in fees – and how much you should ask your client for to get the right amount after fees:
Are you currently employed but want to do some freelance work for clients?
Find out when and how you can start freelancing on the side while being employed. Minimize your potential risks of violating obligations towards your employer.
