-Setting your own hours, working from home, picking and choosing your work load, I mean what’s not to like? Oh yeah…
Nightmarish cash flow!
But fear not independent workers of the world, troublesome cash flow need not ravage your otherwise bliss-laden existence.
Here are 5 useful tips to keep your cash flow on the straight and narrow.
Discount for upfront payments
Most people are pragmatists, and your clients / customers are no different. Wave a juicy discount under their nose for up-front payment (or partial payment) and it might be enough to tempt them over to your way of thinking. For freelancers struggling to maintain positive cash flow, a sacrifice like this is a small price to pay for the satisfaction of a bank account which isn't perpetually teetering on the edge of overdraft.
If full payment in advance is not agreeable to your client, then suggest a partial payment for a lower level of discount. In most cases an approach like this is vital when working on large projects which are likely to take up a lot of your time. Just as a client cannot pay you a large sum of money and risk the work not being completed, you cannot risk completing all of the work, only for the client to withhold payment.
As cynical as it sounds, the world is full of unscrupulous people; you know it and your client knows it. Better to acknowledge this, and come to an arrangement which mitigates the risk for both of you!
Although they might not like to admit it, clients care about the little communicative details which indicate they are working with a professional. Whether subconsciously or otherwise, all aspects of your interaction with them fosters a certain perception, and this perception will ultimately impact key elements of your relationship, including prompt payment.
In the case of cash flow, the significance of these perceptions can be summarized quite simply- the more professional and ‘business like’ your communications appear, the more likely that your clients will extend you the courtesies they would to their more seizable partners.
Once-upon-a-time this created difficulty for the freelancer. How was a tiny independent worker supposed to appear comparable to a business with an entire department of administrators at its disposal? Excel and other programmes are fine and dandy, but they are also time consuming and leave much to be desired in the style department.
Luckily nowadays there are platforms which allow you to quickly and professionally create branded invoices which should help build and maintain an aura of professionalism around your one-person operation, and thus encourage prompt payments.
Freelancers will find that these tools come as a built-in feature of the better online payment systems.
A nice example of this is a recent offering from MasterCard called Simplify Commerce which has been refined into a very useful 360 degree solution for managing payments. This includes a tool which allows you to quickly create branded, professional invoices and then track their progress as they go from ‘draft’ to ‘open’ and (hopefully) ‘paid’.
Further to this, you can give your customers the option to pay invoices using their phone, tablet, PC or other device. Not only does this make it convenient for them to pay, but it also means that you as a freelancer aren’t required to assume the risk of holding credit card information in your possession. Furthermore in the case of repeat business, you can actually create a profile for the customer, store their details, and then invoice them with ease, removing some of the hassle and making the process run more smoothly.
The benefit of using systems such as Simplify Commerce, is that they offer a 21st-century approach to creating and tracking invoices, as well as other resources for managing payments and ensuring a good cash flow.
Hand-in-hand with this of course, is the need meet other levels of professionalism, including...
We know how insufferably dull such things are, but there’s a reason that bigger companies are so keen on them. In the case of nonpayment, or late payment do you really imagine that threats of legal action are going to make an impact if you haven't even had the foresight to get a signed contract?
A contract put in place at the beginning of your agreement not only demonstrates professionalism, but also gives you some added layers of protection if you find yourself struggling to secure payment for your work.
For example, you should build additional charges into your agreements which come into effect in the case of non / late payments. The idea behind these is that you will never have to enforce them, they are not designed to make you extra money, but to encourage timely payments from your clients.
There is nothing quite like the prospect of additional charges to motivate your clients into paying what is owed. In 2013 the UK government introduced the Late Payments Directive which gives businesses and public authorities the right to enforce additional charges and interest payments on money which is more than 60 days overdue. This legislation is applicable to all payments owed by clients right across the European Union, but make sure you refer to the rules before doing anything, as the parameters are quite strict.
If worst comes to worst and you find yourself pursuing legal action over non-payment, your contract will form the centre of your claim, and without it you will find it much more difficult to retrieve what you are owed.
Diverse client base
In other words, don’t put all your eggs in one basket!
Let’s imagine for a moment that you are a freelance graphic designer who has been working with ‘X Consultancy’ for 2 years. You have built a strong relationship to the point where 80% of your workload comes from them. Now, what happens if their business hits some choppy water and goes under?
That’s right...you are going down right along with them.
But the change in their business status doesn't even need to be as dramatic as a sinking ship analogy- what happens if they simply alter their business offering in a direction which no longer requires you to be on board?
Again....you are well and truly up the proverbial creek.
Keeping a diverse range of clients on your books means that you have a greater level of protection from outside influences which could have a negative impact on your cash flow.
This is true not only with regards to individual businesses, but whole industries, regions, and even nations, through which fluctuations outside of your control can have a major impact on your workload and payments. You can make your freelancing enterprise as impervious to these influences as possible by securing diverse clients which are not vulnerable to the same market threats.
It is also very important to keep in mind the seasonality of the work that you complete for various clients. Even though your work might not be obviously vulnerable to seasonality, most industries experience peaks and troughs in productivity throughout the year. For example many non-retail focused digital businesses might experience a slump in December as people focus on festive matters rather than digital services. You should plan and predict when these dips in business are likely to occur and how you can mitigate the effect that they have on your business.
Bill Immediately and chase
And with that, every British reader shudders in horror at the very idea. Yes we know, it’s easy to be a standoffish prig about such vulgar matters, but in order to secure your cash flow as a freelancer you must learn to ditch such archaic sensibilities.
After all, the client is fully aware that you are not working for the good of your health! They know that money is your number one motivator in the situation, and so will see your efficiency as a virtue, rather than as a sign of rudeness.
As soon as payment becomes overdue, send a polite reminder expressing how appreciative you would be if payment were processed at the earliest opportunity. Thereafter, if you remain unsatisfied, pursue the matter with vigour and determination until the balance is settled.
If you have never found yourself in the situation of needing to chase overdue payments, you are likely to become overwhelmed by the situation, perhaps to the point where you back down rather than pursue the matter further. Remember always that you have provided a service, and you deserve to be paid for it.
Having a preplanned credit control procedure in place will prove a great help when dealing with overdue payments, giving you a step-by-step plan of action which will save you a significant amount of time, and make it much more likely that you will get a positive outcome.
This is something that Simplify Commerce can also lend a hand with as it allows you to easily include policies such as interest / late fees directly into your invoices, as well as the ability to resend invoices in an instant and view your invoice histories.
Mi-IDEA Manchester Networking Event
27th Sep 2016
The teams from CISCO and Manchester Science Partnerships have teamed up to create Mi-IDEA, a post-accelerator designed to foster and nurture digital innovation in the North West of England.