If there’s one thing that’s sure to keep business owners and freelancers awake at night, it has to be cash flow—or lack of it.
A positive cash flow (i.e., more money coming in than going out) is essential for any business to prosper. A prolonged negative cash flow is not sustainable, and the business will suffer. It could even lead to bad debt and company bankruptcy.
While creating a cash flow forecast and sticking to your budget is sensible advice, here are some additional cash flow tips for freelancers to consider.
1. Send invoices on time
This may sound obvious, but if you don’t send invoices on time, payment will be delayed, which will impact your cash flow.
If you are not paid in advance, then as soon as the work is completed, send your invoice. If not, you could forget.
Alternatively, send all your invoices out at the same time, such as on the last working day of the month. Setting aside a specific day to send your invoices will mean you are not sending out invoices on an ad hoc basis, making you less likely to miss one.
It also helps to send one invoice per client as opposed to multiple invoices for various different projects and tasks.
2. Keep track of payments
Ensure you know what is due and when, and keep track of any late payments. You can do this by using invoicing software that sends automated reminders before and after payment is due.
Invoice Ninja is a leading free invoicing software for small business invoicing, online payments, tracking expenses and billable tasks. It can help keep track of payments with automatic email reminders and can even automatically include late fees on overdue invoices.
You can sign up for Invoice Ninja for free today. It’s easy to use, can help you get paid faster, and maintain a healthy cash flow in your business.
3. Get paid upfront
It’s not unusual for freelancers to ask for a deposit upfront before starting work on a project, especially for larger projects with a long duration. It could be a 50% deposit, or you could apply milestone invoicing, which means you are paid at set milestones throughout the duration of the project.
Some freelancers ask for 100% upfront payment for smaller paid projects. Getting paid, or at least partially paid upfront, is common for new client projects and helps build trust.
With Invoice Ninja, you can easily convert your client quote to an invoice. When you email quotations to your clients, once they are happy with the details and want to proceed, they can “Click to Approve” the quotation, which converts it into a payable invoice.
4. Seek retainer clients
A retainer client is one that pays you a set fee for a set amount of work each month.
Some retainer agreements work on an ‘on-call’ basis.
Freelancers like long-term retainer clients as they can provide predictability of income. Knowing the income you will receive each month and when also means you can better plan ahead.
This works both ways, i.e. not just for income but for outgoings.
If possible, agree to pay professional service fees, such as accountants, payroll, etc., a set amount for a specific set of deliverables. If you know professional service fees in advance, there will be no hidden surprises or ‘add-ons’ when it comes to settling your bill.
5. Review contracts
Before you enter into any long-term or annual contracts with suppliers or subscriptions for software, tools or equipment you may use to carry out your business, check out their notice terms.
Can you afford to be stuck with their rate for a long period of time?
Subscriptions and uncompetitive pricing can all cumulatively add a heavy toll to your cash flow, especially if you have to give notice to cancel.
It’s worth reviewing the contracts and plans you currently subscribe to to see if you could get a better deal elsewhere or adopt a pay-as-you-go pricing model.
In business, as in life, it’s the seemingly inconsequential things that can turn into the big things.
6. Productize services
If applicable, consider productizing your service or an element of it.
Productization involves standardizing a process and selling it at a set price for a set deliverable. It also breaks you out of the charge per hour or per project model.
For example, a personal trainer could sell an online course or pre-recorded training sessions in addition to their day-to-day in-person training.
A copywriter could sell a LinkedIn bio optimization service at a set price. You could even productize your service and sell it as a subscription model. The only limit is your imagination.
Productization allows you to grow and scale and is a great way to optimize cash flow.
7. Discount for fast and early payment
As an incentive for clients to pay you quicker, consider offering a small discount for early payment.
If your payment terms are net 30, which means the payment is due 30 days from the invoice date, you could offer a 5% discount if paid within 10 days.
Being paid early can make all the difference in periods of negative cash flow. Likewise, you might want to consider adding late payment fees to your freelancer payment terms and conditions.
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A large part of maintaining a positive cash flow in your freelance business is being organized and planning ahead, especially for any potential slow times. Knowing what’s incoming and outgoing and keeping track of your spending are all key factors that will significantly contribute to keeping your business bank account topped up and buoyant.
