How to get paid (more or less on time) as a freelancer
By Carrie M. King →The financial side of freelancing is often difficult to navigate, but figuring out how you manage your fees is essential. Let’s take a look at how to get paid properly as a freelancer—and how to manage when you don’t.
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Getting paid well and on time is an essential part of respecting and loving what you do. Many freelancers, particularly those in creative industries, can find money talk extremely difficult. A lot of creative people begin their careers being asked to work for free or get criminally lowballed in financial negotiations. This results in freelancers having very little understanding of what’s a fair rate and how to price themselves. As we don’t tend to talk openly about money in polite—or even impolite—conversation, the spiral of underpaid freelancers continues.
So if you’re at a total loss about what to charge and how to make sure you’re promptly paid, it’s time to do a little homework. Let’s take a quick walk through the knotty world of freelancer financing.
1. Set up your systems
Freelance income can be unpredictable. You may work on several different projects in the space of a month, have a range of rates depending on the client or type of work, or charge one client on a project basis and another on an hourly basis. That’s why it’s essential to set up systems to track your time, costs, client base, and income. You are your own manager, CFO, and secretary, so make your life as easy as you can.
There are lots of free or cheap tools you can use for time and project tracking as well as invoicing and tax management. Remember you can write off costs against your taxes so it’s worth investing in a tool that genuinely makes your life easier. Automating invoicing and payment reminders can also help you avoid those awkward “money, please” conversations with clients. And speaking of money…
2. Define your fees
Set rates that enable rather than limit you. Some companies, e.g. news publications, have set fees that they pay to every freelancer. However, in most cases, you’ll need to tell clients what you charge. This can be nerve-wracking so do your homework in advance and have a set rate in mind before you speak to a potential new client. That way, you won’t be on the back foot when they spring the inevitable money question.
When you’re setting your rates, there are a few things to keep in mind:
How much do you need to earn?
Take into account your living expenses, tools, equipment, costs, insurance, taxes, pension contributions, savings goals, etc. It’s probably wise to overestimate slightly how much you need to earn, especially given current inflation rates.
What are the current rates in your area?
Research what people are getting paid for similar work. Depending on where you live, this may vary quite a lot. It can be hard to get reliable information online, so don’t be afraid to ask others in your field for advice. You’re a community, not just competition.
How many hours do you want to work?
You need to set rates high enough so that you can cover your needs without having to work every hour under the sun. Decide how many hours you can work every week and then reduce it slightly. Give yourself a little wiggle room so that you have the flexibility to move with whatever a work week throws at you.
What is your MAR (Minimum Acceptable Rate)?
It’s time for more sums. Add up your monthly expenses and multiply them by 12. Figure out your local tax rate (in Germany, for example, this can range from 14% to 42% — unless you’re earning really big bucks where it can go up to 45%). Add your tax estimate to your expenses. Divide this figure by the number of hours you expect to work in a year. Don’t forget you need to take holidays! The final number should be your MAR.
Add on your value.
Your experience, skills, and time have value. If you only charge your MAR, you won’t make a profit and you need profit to provide for yourself, save for your future, and have the fun you deserve. Remember that you’re not just charging for the hours you work — you’re charging for its long-term effect. If you build a website, that website will continue to provide value for far longer than the time you spent creating it.
Assess on a project basis.
Now that you have your baseline hourly rate, you’ll be better prepared for assessing each project as it comes in. For some, it will make sense to charge a set fee for an entire project. For others, it might make sense to charge an hourly rate. You might charge less for smaller pet projects and charge more when you’re working with bigger household names. Use your common sense, intuition, and the homework you’ve already done to set your rates.
3. Sign a contract
While your rates will likely vary from client to client, in most cases it makes sense to insist on a contract to define the terms of the freelancer-client relationship. This will also mean you have written evidence of the fee you agreed, how you will be paid, and the payment cadence you agreed on. Most invoices should be paid within 30 days. However, it’s often good to agree on a shorter payment window such as 15 days to ensure you’re never stuck for funds. Read the terms of the contract carefully and if it’s several pages long (unlikely with a boilerplate freelancer contract) make sure to initial every page. Query any sections you’re not certain of, and be careful of copyright clauses. It’s common for creatives to be asked to sign away rights to the effects of their work so get advice on this if you’re not sure.
4. Invoice on time and send reminders
I’ve said it before, but as a freelancer, you have to be your own (excellent) secretary. If admin isn’t your strong suit, set up systems that handle it for you. Automate as much as you can and use software that automatically populates and sends invoices. Sending invoices on time might sound like a no-brainer, but as many of us are uncomfortable being direct about money, it’s worth underlining. If clients don’t pay on time, send them a reminder. In most cases, this will be a simple oversight. If you feel weird about sending payment reminders, automate them. For anyone who needs a reminder of the basics, your invoices should include the following:
- Your address
- Your client’s address
- Your client’s registration number
- The date of issue
- The date by which the invoice should be paid
- A description of the product or service provided
- Unit price
- Total price
- Total VAT (if you’re charging it)
- Your bank account details
- Your tax number
- Your VAT ID (if you’re charging it)
If you live and pay taxes in Germany, and are not charging VAT, you should add the following sentence to the bottom of your invoice.
Hinweis: Als Kleinunternehmer im Sinne von § 19 Abs. 1 UStG wird Umsatzsteuer nicht berechnet.
5. Know when to charge late payment fees
Late payments are a frustratingly common part of freelancing. Often, it’s simply oversight or human error, but being understanding won’t get you paid. If your invoice has not been paid within the agreed time window, send a payment reminder and underline that if the invoice is not paid within a certain time frame, you will charge a late payment fee (usually 5% of the total invoice). You are perfectly within your rights to do this so don’t feel sheepish about it.
Want to learn more about other aspects of freelancing? Check out our article on the 10 most common challenges you’ll face as a freelancer.
Freelancer finance can be hard but giving yourself a good set-up will prevent a lot of headaches later on. You need to build your own supports and safety nets and find community that can help you out when you’re not sure what to do.
At Goose, we’re building a service to help you manage the nitty-gritty of freelancing so you can spend more time focusing on the work you really want to do. Interested? Watch this space.
