As a freelancer, how and when you collect payment for your services has a direct impact on your cash flow. Therefore, it’s essential that you invoice promptly and set invoice payment due dates that strategically align with your business’s inflows and outflows.
To ensure prompt payment, you should clearly state your invoice payment terms and obtain the client’s written agreement before commencing work. You can stipulate different payment terms and conditions per client, but generally speaking, for housekeeping and efficient cash flow management, it makes sense to be consistent across the board.
Here are some of the most common invoice payment terms for you to consider.
1. Payment in advance
It’s not uncommon for freelancers to ask for payment in advance or at least a deposit upfront. The deposit typically ranges from anything up to 50% of the total for larger budget projects. Sometimes, with lower-budget work or projects of short duration, freelancers request full payment in advance.
With Invoice Ninja, a leading free invoicing software, you can set up partial payments/deposits with unique due dates. After your client pays the partial payment, the invoice will automatically update itself with the balance due and set the new final invoice due date. Perfect for freelancer deposit payments.
Try Invoice Ninja for free here.
2. Net terms
You may have seen terms such as Net 30, Net 15, or Net 10, or even higher numbers, up to Net 60 or Net 90. The succeeding number represents the number of days after the invoice issue date by which the invoice is due for payment.
For Net 30, the invoice must be paid within 30 days of the invoice date, i.e., when it was issued. Of course, the client can pay before that date, and all the better for your cash flow if they do. Anything past that date is considered past due.
If you apply net terms, the duration you select for your business will be tailored to your specific cash flow requirements. If you need the money sooner, consider using a shorter duration, such as Net 10 or 15. Before commencing a project, ensure you are aware of the client’s payment terms. Some larger organizations have longer payment terms.
3. Late payment fee
Depending on what you’ve stipulated in your payment terms and conditions, you can apply late payment fees when invoices are past their due date. You should clearly state in your payment terms and conditions that you’ll apply fees if invoices are overdue.
With Invoice Ninja, you can charge a client extra for unpaid invoices by setting up invoice late payment fees that apply automatically when invoices pass their due dates.
You can set up late fees as a percentage of the invoice or as a flat monetary value.
4. Discount for early payment
To motivate your clients to pay you promptly, consider offering a discount for early payment. You can indicate this by stating the discount in the following format: ‘X% discount/number of days early’ followed by ‘net terms’.
For example, 3/10 n30 means that if the client pays you within 10 days, you would give them a 3% discount. However, if they don’t pay within that time period, the discount will no longer apply, and the invoice will revert to the standard 30-day period.
Naturally, it’s up to you what discount terms you apply. But for larger sums, the discount to the client may well be an attractive bonus.
5. EOM/MFI
EOM stands for End of Month. In this case, the invoice is due for payment at the end of the month in which it is issued. However, it needs to be clear to the client at the end of which month the invoice is to be paid, and it should be sent early enough in the month to avoid any confusion, cash flow issues, or short payment windows, which could be an issue for your client.
MFI stands for Month Following Invoice. This means invoices are due in the month following the month in which they are issued. For example, MFI20 would mean that the invoice is paid on the 20th of the month following the month in which the invoice was generated. MFI15 means payment is due on the 15th of the month following the invoice, and so on.
If you have regular clients who are billed repeatedly on a fixed schedule, you can make use of Invoice Ninja’s recurring invoice feature.
Recurring invoices are a convenient way to automate the invoicing process for clients you bill on a regular schedule, ensuring you don’t forget to send them or send them late. You can set up a recurring invoice to be generated automatically at a specific interval and sent to your client via email.
Find out more here.
6. Due on receipt
This means that payment is due on receipt of the invoice. This doesn’t offer the client a payment window, so it’s often used when a deposit has already been paid, and this is the final invoice.
Even if a deposit hasn’t been paid, and you’ve made it clear to the client before starting work that that is the payment term, it also helps if you make it easy for clients to pay you.
Invoice Ninja offers a range of popular payment gateway providers, meaning your clients can pay you online at the click of a button without having to leave their client-side portal. Hassle-free for them, and faster payment for your business.
See all our payment gateway providers here.
7. Partial/stage payments
Also known as milestone invoicing, partial payments are payments made to you throughout the duration of a project. These are commonly applied to projects that are long in duration to ensure you are getting paid at specific intervals or milestones throughout the project.
Invoice Ninja’s Payment Schedule feature enables you to define the payment schedule for an invoice, allowing clients to pay over time. You can split the payment into equal payments on a predefined schedule or a custom schedule, where you can define each date and corresponding amount.
Watch our short demo video to find out more.
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Whatever payment terms you choose to apply, to help avoid any payment issues, ensure your payment terms and conditions are clear and have been agreed with the client beforehand.
