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As a freelancer or small business owner, knowing when and how to invoice a client can affect both cash flow and your relationship with them. You want to get paid. You also want the invoicing process to be smooth and stress-free.
It’s an important part of managing your business finances but there’s no one-size-fits-all answer – it depends on your project and client. Let’s take a look.
Billing once the work is done can be a great way to keep things simple and straightforward. Clients pay once everything’s finished and they’re happy with the final product, which feels fair for both sides.
It can also build trust, as the client knows they’re not paying until the work is actually delivered.
But on the flip side, it does put a bit of pressure on cash flow since you won’t see any money until the project is wrapped up. That means you’ll need to stay on top of your budgeting and might have to chase payments if things slip through the cracks. It’s definitely a balance, but when it works it can work well.
If you use this method, make sure you’re very clear about the scope of the project upfront, and always include payment terms in your contract. You can also ask for milestone payments along the way to avoid waiting too long before getting paid.
Asking for an initial deposit before work kicks off is fairly common in some industries. Depending on the nature of your business you might ask for a percentage of the total fee or for the cost of any materials up-front. For example, this helps reduce the risk of you being stuck with 250 personalised teaspoons that you can’t sell to someone else.
As a longer project moves along, it’s often a good idea to break things into phases and invoice after each major milestone. For example, say you’re designing a website. You might send an invoice after the wireframe is done, then another one after the design gets approved, and then a final one when the completed site is ready to go live. Finally, the last payment typically comes after the project is totally finished and the client has signed off on everything.
Sometimes clients might be a bit hesitant about milestone payments, especially if they’re used to paying everything at the end. If you explain that breaking the payments up helps ensure quality and protects both sides, they’ll usually understand.
It’s also really important to keep track of those milestones and make sure you’re both on the same page about what needs to be done and when. Clear communication and documentation like a written quote are key to making sure everything goes smoothly for both you and your client.
Retainer payments can be amazing for your cash flow. Since clients pay you upfront for a set amount of work over a certain period, it gives you a predictable income stream, which can make budgeting and planning so much easier.
You don’t have to worry as much about those gaps between projects or chasing down payments because you’re already set for the next few months. Plus it allows you to focus more on the work itself instead of stressing about when you’ll next get paid.
Retainer agreements can be awesome, but they do come with a couple of challenges. For one, clients might expect you to prioritise their work, which means you’ll need to manage your time really carefully to balance their needs with other projects.
Also, make sure terms are completely clear from the start, otherwise clients might start expecting more work than what was originally agreed. It’s all about setting clear boundaries and managing expectations so things don’t get out of hand.
For retainer agreements, always include exact details in your contract about the scope of work, what’s included, and the hours or services covered. Revisit the agreement every so often to make sure it still meets both your needs and your client’s.
The timing of your invoices directly impacts your business’s cash flow. For example, if you bill only once a project is completed, you may face delays in receiving payments, which can affect your ability to cover your expenses. Milestone payments, on the other hand, can keep money flowing steadily, helping you manage your business’s financial needs.
In a nutshell, here’s how different billing methods can affect cash flow:
Balancing different types of billing methods can help smooth out cash flow fluctuations. For example, you could do milestone payments for larger projects and offer retainer agreements for ongoing work.
Once you’ve decided when to bill your clients, the next question is how should you take payment? There are a few different methods to consider, such as:
Make sure to offer a variety of payment methods to meet your clients’ preferences but always keep fees in mind.
Even with clear payment terms and invoices, there are always going to be times when a client is late with payment, and that can be hard on your cash flow – and on your sense of humour.
It’s best not to wait too long before sending a friendly reminder about overdue invoices – the sooner, the better. Using an automated system can help a lot too, as it takes the pressure off you and makes sure you don’t forget to send a reminder.
And, no matter what, always stay professional in your communication. If payments are still overdue after a few reminders, you might need to get more serious and introduce late fees or collection actions. Telling a customer that their cat is ugly is less likely to get results.
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