Freelance consultants are no strangers to cash-flow crunches and as quiet as it’s kept, the problem can be of our own doing, or not doing. The reason for our cash-flow problem could be a slow-paying or, horrors, a non-paying client (an acquaintance who is a business accountant estimates that 5-10 % of professional services providers’ receivables will be uncollectible in a given year). But we can be our own worse enemy in these matters and it is time to tame our invoicing inertia.
As example last week, I sent an invoice to a client that was worth four figures and was four months late. Why was I so negligent, when I had important accounts payable to resolve? Why is it so hard for so many small business owners and self-employed professionals to stay on top of our accounts receivable and send out invoices on time?
In my consultancy, and I imagine this is true for most, client work, both performing it and networking to bring more of it in, are the priorities. Billable hours are the name of the game. Then there is content marketing activity (this blog!) to send to my preferred social media platform (LinkedIn) and my website. Other revenue streams—teaching twice /week, which entails responsibilities to my students, and producing a monthly post for the online magazine for women entrepreneurs where I am a staff writer—claim another chunk of time and creative energy. Being in business requires considerable mental and physical stamina.
The invoice was for hourly work, rather than a project fee, meaning that detailed information was expected (and not unreasonably so). The very thought of generating the thing nearly made me nauseous, so I found several avoidance-behavior activities that on the surface appeared to be ambitious, but in reality served mostly to enable my procrastination. Then the client asked me about the invoice. I was so embarrassed!
As I worked on the detailed, multi-page invoice, I thought about what I might do to simplify the process, so that I could easily generate scheduled invoices and would be motivated to do so. Invoicing for a project fee is much easier than the hourly rate version and it was project fee invoices plus the job income that sustained me while I neglected the hourly invoice. Here’s what I recommend (my business accountant friend approves):
Collect in advance
Whether the assignment is paid by hourly rate or project fee, collect a percentage at the contract signing or email-documented agreement (20 % – 35 % of the project fee, or an estimate of the first months’ billable hours). Discuss with the client a mutually agreeable invoicing schedule and honor it.
Create two all-purpose invoice templates
In the top left of a Word document, type in your name and/or DBA as the vendor, tax I.D. and contact info. This will become the permanent part of your template. Below that, type in separate lines for the client name, date, project deliverables, total amount of the project fee and the amount of the invoice. All you’ll need to do is copy the template, drop in the specifics and presto! You’ll have an invoice to send.
The hourly rate template will have a cover sheet that is similar to the project fee template, but with the lines for rate (the dollar amount you’re charging/hour) and hours (total billable for this invoice) substituted for the project fee info. A second page of the hourly rate template will have lines for four “week of” headings, ready for you to insert the dates and specifics of your weekly client work.
Either invoice can be used for retainer contracts. If you are brought in to work a standard number of hours per month for a particular client, or you’re asked to perform predictable functions as needed throughout the year and you can reasonably estimate how often you’ll be asked to perform those services and your cost to provide them, then you can calculate invoice amounts in advance and determine a retainer fee. If this is the case, then suggest a retainer arrangement at the next contract signing and bolster your income security.
BTW, it is not unusual to invite a client to pay the year’s (or quarter’s) retainer in advance. Offer some attractive incentives for yearly or quarterly advance payments, like a good discount or service add-ons.
On all invoice templates, indicate how the check should be made out (your name or DBA) and indicate that the invoice is due immediately (although it is accepted practice to pay invoices within 30 days). Finally, state that it is a pleasure doing business with your client.
Invoice on time
Whatever the agreed-upon payment schedule, be sure to follow it (not more than one week late). When you honor the invoicing schedule, you communicate to clients that getting paid within 30 days, if not sooner, is what you expect and deserve. Timely invoicing also benefits your clients, who will be able to better manage their own accounts payable and cash-flow. If you start to bring in more lucrative assignments, investigate the process of accepting credit card payments. You’ll be paid faster, but a small processing fee will be deducted.
Invoice as marketing collateral
To date, my invoices are created on an unembellished Word document, but that is about to change. I plan to align my invoice design with my other marketing collaterals. Very soon, I’ll design an invoice PDF that contains a scan of my (lovely) business card, that will appear at center top. All the other info will be written as described here. You can also investigate free invoice templates in an online search.
In our hyper-competitive business environment, where clients hold the keys and seem to be looking for reasons to cancel projects that Freelance consultants depend upon, it is imperative that we project professionalism. All interactions with clients, from the first meeting, to the excellence of our work and concluding with an accurate and timely invoice, must reflect well on our brand.
Thanks for reading,