Lovely summer is here, generously rewarding us with warm breezes, long days and abundant sunshine. Summer gives us many gifts but unfortunately, a generous amount of billable hours may not be one of them. Two possible solutions to the impasse are to step up your networking activity starting in early spring, to help yourself meet and connect with potential clients who are in hiring mode and to let family, friends and referral sources know that you’re looking for projects. Don’t be shy!
As a self-employed professional, you are the captain of your ship and it is your responsibility to take all reasonable measures to improve your financial position. Your survival depends on it. Smart marketing and prudent financial management are the foundation of a successful enterprise.
The most critical aspect of financial management for Freelance consultants and small business owners is to collect accounts receivable as quickly as possible, so that adequate cash-flow is maintained and accounts payable, employees and subcontractors can be paid on time. Regarding your accounts receivable, I recommend that you take the following actions to encourage on-time payments:
- During the project specs discussion propose a payment schedule, perhaps tied to the timing and achievement of certain project milestones.
- Request a down payment of 20% – 35% of the total project fee and unless you’ve previously worked with the client, don’t start the project work until it is in hand.
- Invoice according to the agreed-upon payment schedule.
I cannot overstate the importance of these three actions. Accountants estimate that in a given year, 5% – 10% of professional services providers’ invoices will be uncollectible. The client is not always entirely at fault. Freelancers must demonstrate that we intend to get paid and that’s done by being serious about the project payment schedule, requiring a project fee down payment and on-time invoicing.
Another helpful tactic is to make money by saving money. Examining your accounts payable might help you gain a few dollars each month. The number one accounts payable tactic is to avoid paying late fees by any means necessary. Several years ago, many companies recognized that late payment fees are a very lucrative passive revenue stream and so they doubled, or even tripled, their penalties. Some also shortened the length of their grace period window, when a late fee could be avoided. Defend yourself from this predatory practice by flagging all accounts payable with their due dates as they arrive and make every effort to pay on time.
Another reason to pay on time is that a good payment record can sometimes be used to negotiate a lower credit card interest rate or request that certain fees might be waived or reduced at your bank. While you’re on the phone and in the mood to negotiate, call your cell phone company and internet service provider and see what they can do to lower your monthly bill.
Adequate cash-flow is the life blood of every business, required to finance all business operations, including marketing campaigns, technological upgrades, professional development and other activities that support the venture. No business can function effectively, much less grow and thrive, without healthy cash-flow. Your diligence and negotiation skills can contribute substantively to its maintenance.
Thanks for reading,
Image: The Fruit and Vegetable Seller (1631) by Louise Moillon (France, 1610 – 1696) Courtesy of La Musee du Louvre, Paris