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Many years of freelancers know the first and last words as freelancers. That is, signing a contract with the client that includes the relevant freelance payment terms.
Operating without a contract seeks trouble in the event of a dispute. Contracts set clear expectations, conditions, and conditions that build trust with clients and determine the outcome of a project.
When the project is complete, we will send an invoice to the client to receive payment. Timely and full payment of the invoice depends on the quality of your work as much as the payment terms you included in the contract. Let’s take a look at the 10 payment terms you know and should include in your contract.
Freelance is your business and, like any business that requires cash flow from clients to pay invoices and make a profit, you also need regular cash flow from clients. Raising your invoice pays you, but your invoice is only as good as the freelance payment terms of your contract.
If a client wants to delay your payment without well-defined payment terms, all they have to do is carefully select your delivery and initiate a renegotiation of the terms.
Payment terms are not included in the contract or are ambiguous, which is contrary to their word. Who will win or lose in this dynamic?
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Therefore, the contract must include clear and concise payment terms. To give a few examples, you need to include conditions that cover areas such as product quality approvals, payment periods, late payment surcharges, and early payment discounts.
Well-defined freelance payment terms help you maintain stable cash flow, budget, and make financial forecasts just like any commercial business.
In other words, the success of your business depends on the invoice payment terms you have incorporated into your contract.
Now let’s take a look at 10 common payment terms that you need to understand and include in your client contract.
1. Approval of project completion
This is not a payment-related term, but it has a direct impact on ensuring timely and complete payments. When the project is finished, make sure you are satisfied with the delivery time and quality of work and get a sign-off from the client. Remember the topic of picking clients from above?
We want to close their doors. Of course, not all clients do that. The majority pay according to the agreed terms. However, as all companies do, it’s about hedging your risk.
2. Sales period
The sales period covers the terms and conditions that you and your client agree to complete the project. These conditions cover areas such as pricing, total costs, delivery dates, payment methods, and whether payments are due or due. These terms are also an important part of the invoice.
In short, it covers all the expectations of you and your clients and eliminates the possibility of future misunderstandings and disagreements.
Both parties have clear expectations and agree to the same. Sales terms are widely used in international trade (think of working for overseas clients). You can create a ready-to-use email template for this to help you manage multiple clients.
Let’s get to the point of payment terms. The above terms are some of the most commonly used payment terms for freelancers. Specify the time from the billing date to the payment date. For example, suppose you’ve been working online for 30 days. Now, if the invoice date is April 1st, it is expected to be paid before April 30th.
The freelance payment terms you choose are influenced by several factors, including the total cost of the project, the length of the project, and your own cash flow needs.
In general, longer, more prominent, higher budget projects have longer payment periods, while shorter, lower-cost projects have shorter payment cycles.
You need to specify when the 30-day period begins. This is usually the date the invoice was submitted.
Let’s say the negotiated payment period is a net of 30 days or 30 days from the date of the invoice. Want to get paid early? To do so, you need to give your clients an incentive to pay earlier than the negotiation period.
Be sure to include an incentive for early payment in your contract. Terms like 2/10 net 30 mean that if your invoice expires in 30 days and your client chooses to pay in 10 days, you will get a 2% discount. Again, the terms we offer depend on your needs.
If your cash flow is stable and early payments are of little help, you can offer a 2% discount on early payments. However, if you are tied to cash, you can offer a higher discount rate for early payments. With 5/7 Net 30, you can offer clients a 5% discount on payments within 7 days.
You can also paraphrase the terms for clarity. So something like “Pay within 7 days to save 5%” will also work.
5. Payment delay conditions
Payment delays are a recurring problem for many freelancers who rely on quick payments to maintain stable cash flow and pay invoices. The fact that your payment chunks are being executed late means that you are always out of your pocket to fulfill your obligations. An effective way to ensure timely payments is to tag your contract with late payment charges.
Late fees are usually the monthly interest you charge for the period of arrears. Start by doing some research to see how much interest you can legally charge in your state.
Then discuss with the client and inform the client of the payment delay policy. Once this is complete, you can begin creating this clause for all contracts and invoices.
The contract delinquency clause can be a simple statement like this: Full payment must be made within 30 days. However, all late payments will incur 1.5% interest per month on late invoices. ”
Of course, the best way to prevent late payments is to follow up with your clients on a regular basis. Please contact the client as a reminder one week before the payment deadline. If payment is delayed for more than a week, weekly follow-up is required until the invoice is paid.
6. Interest invoice
We have seen some of the challenges faced by freelancers due to late payments. What are the consequences if the client does not pay the invoice on time?
If the client is late for payment, you will need to generate an interest invoice. When calculating interest on late payments, remember to charge only for the number of days that payments are overdue.
Suppose you charge 5% for each interest rate on all late invoices and the client charged for $ 1,500 is 60 days late. Divide 60 by 365, multiply the result by .05 (5% interest), and then multiply by 1,500 (the amount charged for interest). Interest will be $ 12.33 in 20 days.
(60/365) * 0.05 * 1,500 = $ 12.33
Now you need to reissue the invoice for $ 1,512.33. Please note that the interest invoice is not only a reminder of overdue payments but also a revised invoice that includes the relevant interest and settlement date. As a process, we will send these invoices monthly with adjusted calculations.
E O M is an abbreviation for the end of the month. This freelance payment period means that payments will be made at or before the end of the month the invoice is issued.
It has the advantage of guaranteeing a predictable inflow of funds at the end of the month, but it does not work for all clients.
Also, E O M may not work. Suppose you issued an invoice on April 27th. You are giving your client only 3 days to receive and process your payment. It’s not very feasible just to take into account the time it takes for a client to get approval for an internal payment.
However, this payment period works because it usually takes 25-30 days to process and pay the invoice if you send the invoice at the beginning of each month. Therefore, if you always send an invoice within the first week of every month, this is best used. Use your email software to set the frequency.
Another variant of this term is regular billing. This will be explained next.
8. Periodic billing
Companies and freelancers working on long-term projects with the same client can consider working with this term. These are usually invoices for ongoing services such as SEO, website optimization, web hosting, and guest posting services.
Invoices are usually the same amount each month and are like monthly memberships or subscriptions. Regular invoices stabilize cash flow.
This makes predictions easier and saves you the time of creating and sending monthly invoices to clients. Monthly payments reduce the chance of late payments and make your life easier.
You can easily set up recurring invoices using the billing software available online. Generally, you need to enter the following information:
Details of the products/services we sell, such as price, quantity, and value.
Billing frequency, start date, number of occurrences, and sending options.
Once you have set up and scheduled a recurring invoice, you can use the software to select the mode for sending manually or automatically.
The manual selection allows you to quickly scan before submitting an invoice for common situations such as price changes, contract terminations, or clients leaving town for a month.
9. Payment method
There are several physical and digital options available today, and it is wise for freelancers to accept and configure to receive payments through multiple options. Each client has different needs and prefers different payment methods. Sign up for a wide range of options to give you the flexibility to accommodate a wide variety of clients.
By making it easier for your clients to pay you, you will be more accustomed to your clients, and it will help you get paid on time. Overall, it’s a better experience for the client.
Here are some of the common payment methods you need to look at:
Cash and Checks: Cash and check payments are rare these days, and probably not many clients are using them. The exception is the old-fashioned client and low billing. Most clients today use digital payment methods.
Credit Cards: Many companies use their corporate credit cards to settle business invoices. Using a credit card gives your business an additional payment period in addition to the payment period. Let’s say you work on a 30-day condition and the credit card company gives your client 40 days to pay. Your client pays you in 30 days, but his spill is 70 days. This arrangement is useful for cash flow.
Credit cards charge you, but including this option may help you get paid faster.
Clearinghouse: ACH remittance is an electronic remittance. This includes direct deposits to your account and multiple online options such as PayPal, WePay, and Stripe. With ACH remittances, the client usually receives the funds by making a payment for 1-2 hours.
Wire Transfer: Wire Transfer is a provider that includes Western Union and Transferwise. Here, the client transfers the funds to the provider and provides the transfer number. Go to the nearest branch, give your number, show your ID and receive payment. You can also set the funds to be sent directly to your bank. However, fees may be added, especially for small or one-time payments. Find out the best option for your area (and client).
You can set up, maintain, and track multiple payment methods. If you are just starting freelance, setting up a bank account is the first step. You can then link your account to various online payment platforms.
You need to create an account on every payment gateway you want to offer. Also, open a merchant account with a major credit card. Be sure to include the payment method you accept on your invoice.
10. Factoring service
Okay, when it comes to freelance payment terms, this isn’t for your contract, but it’s a jailbreak card for the situations that all freelancers sometimes face.
All freelancers are faced with an urgent need for funding and invoices that are not due or are late. What do you do in this situation? Invoice factoring is one of the viable options if you need money for urgent and unexpected billing, or even to grow your freelance business. Before going this route, be very careful and know what you are working on.
This includes passing the invoice to a factoring company that pays up to 85% of the invoice in about one day. This is useful if you are stuck in a bind and need to close a hole in your cash flow.
Of course, the factoring company will charge you and make sure you read the fine print.
Factoring services like Blue Vine charge 0.5% of your weekly bill. However, most factoring services allow clients to continue to pay in the name of your company.
When considering freelance payment terms to include in your service contract, always remember to be polite, keep the terms concise and clear, and provide incentives for early payments.
It addresses potential late payments with interest and gives clients the flexibility to choose from a wide range of payment options.
Clear, concise, and consistent payment terms increase your chances of getting paid on time. And that’s your primary goal, right? Like clockwork, you will be billed weekly, biweekly, or monthly. Give priority to billing.
Thank You For Reading.