When it comes to running a business, especially a freelance one, cash flow is king.
Simply put, cash flow is the money coming in and going out of your business. The aim of your freelance business is to have a positive cash flow. i.e. more cash coming in than going out.
Even if you are forecast to make a profit by the end of the year or have promises from clients for lucrative work in the future, if there is no money in your actual business bank account in real-time to pay your overheads, buy the materials to do your job, keep the lights on, etc., then you have a cash flow problem.
Here are 8 cash flow issues freelancers face and what you can do to negate them.
Not sending out invoices on time
Whether this is down to poor time management, a productivity issue, or simply having too many plates spinning in the air, it’s imperative that you send out invoices on time. A good invoice management system is a must for any business. You need to know and document what needs to be sent out, to whom and by when, and act accordingly.
Obviously, if you don’t send invoices out on time, you won’t get paid on time, which can play havoc with your cash flow.
For regular long-term clients and fixed retainers, consider agreeing on a regular invoicing schedule, for example, a specific date in the month. With Invoice Ninja, you can save time by using the auto-billing feature and automatically bill long-term clients with recurring invoices.
Sending out incorrect information
If you’re not an invoice expert or have never had to send one out before (because you’ve only just started out on your freelance career), then it’s likely you don’t know everything about what’s supposed to be detailed on an invoice and can, as a result, make costly mistakes.
That’s where professional invoice templates come into their own.
Invoice Ninja offers a range of customizable professional invoice templates for you to choose from. And because they are professional invoice templates, they include all the necessary payment fields to enable you to be paid accurately and promptly – even from international clients.
Not agreeing on the deliverables in advance
Before commencing a project, it’s advisable to get everything down in writing to manage the expectations of both parties and act as a document to refer to if any queries crop up during the project’s duration.
This written agreement or proposal should not only outline the objectives of the project and detail the deliverables but also state payment due dates, late payment fees, if you require a deposit in advance, and any refund/cancellation policy. You should also bear in mind that sometimes, by creating detailed line summaries of the project, you can charge more by showing your value and everything you are bringing to the table.
Having just one source of income
Even the most regular, reliable, long-term gigs can terminate abruptly for a myriad of reasons. So, as a freelancer, it’s preferable not to put all your eggs in one basket, or if you do, make sure you have a buffer to turn to should things go pear-shaped.
This might be a passive income stream, a ‘rainy day’ buffer fund, or another skill set you can quickly turn your hand to if needed. If you have just one source of income, it will have a massive impact on your cash flow should it end without notice.
Not knowing costs and overheads
This is something that trips a lot of new freelancers up and can mean that you start off your freelance career on a back foot, forever firefighting and worrying about your finances. This, in turn, can make you take on work you don’t enjoy or pay enough.
It’s essential you know all your costs and overheads before you start, both monthly costs and annual ones. Because if you don’t know your outgoings, how do you know how much you need to survive, let alone make a profit? Therefore, you might find yourself having to adjust your prices upward.
On top of that, it can be awkward to justify big price increases to clients later on down the line without adding any further value.
Slow-paying clients have a habit of turning into non-paying clients if you don’t nip it in the bud from the start.
This might mean you have to assess them in advance and take note of any obvious ‘red flags’ such as lowballing you and trying to negotiate a lower price, being slow to respond to general communications, and being vague on project deliverables and timescales.
Of course, there may be a valid reason why a client is slow to pay. With the Invoice Ninja Pro Plan, you can send out unlimited custom email reminders and bill clients extra for unpaid invoices with its Automatic Late Fees on Unpaid Invoices feature.
Not preparing for quiet times
Most freelancers have experienced the dreaded feast and famine cycle where you have plenty of work one minute and precious little the next. That’s why it’s really important to always have a financial safeguard in place for quieter times.
It might be a cyclical issue pertinent to the industry you work in or simply a lull in the economic cycle, but whatever the reason, always be prepared for it and, ideally, put aside as much as you can afford when you have the chance (rather than unnecessary splurging), because, as they say, ‘the best time to fix the roof is when the sun is shining’.
Having few or zero clients
Finally, the obvious cash flow problem is not having any clients (or not enough), or the wrong kind who frankly don’t pay you very well.
This can be for a number of reasons, but it usually comes down to inadequate marketing and unsuitable client acquisition strategies. For example, are you marketing your services to the wrong clients, is your offer ‘off’, is it a niching issue, or could you be making one of these mistakes?
Ultimately, you’ll want to tackle this issue as a priority as one thing’s for sure: it will severely impact your cash flow!
Fortunately, we’ve put together an article about 5 things you can do to attract your first freelance clients here.