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Being a freelancer comes with freedoms, such as having more control over the projects you work on and who you work with, but with it comes the responsibility of ensuring that you get paid. Cash flow, in fact, is one of the most common issues businesses face, with around 57% of small businesses in the UK saying that they’ve experienced cash flow problems and 24% suggesting that late payments are a threat to their survival. With this in mind, it’s important to do all you can on your side to manage your cash flow.
We interviewed freelance accountant, Laura Bolton, who previously worked as a finance manager within a global company, to share her wisdom on how to manage cash flow as a freelancer.
What’s the best practice for setting up payment processes with clients?
If you’re working with clients outside these, there are many systems available to help you set up automated direct debits. You should start by formalising this with your client by asking them to e-sign an agreement and direct debit mandate. I would advise either Strip or WorldPay for this as both are good options. It’s also worth looking into setting up accounting software such as Xero or Quickbooks. These make the process much simpler with automated payment methods such as the ones mentioned, and also Paypal.
Depending on the size of the contract and if it’s regular work, you could also explore the option of using a monthly service fee. These are often popular with clients, as it eases the cash burned for them because they pay a fixed monthly fee rather than a large invoice at the end of each project.
How should you approach invoicing as a freelancer?
Using accounting software is your best option. HMRC are pushing people towards digital accounting, as it simplifies regulation for them. If you’re VAT registered, it’s actually a legal requirement to be using digital accounting software, but even if you’re not, accounting software makes it much simpler to manage invoicing and payments. Whether it’s being able to see what work has been invoiced, or allowing you to review historical payments and invoices, the task becomes much less time-consuming. Depending on how much you value your time, I’d say it’s a worthwhile investment.
What is the best way of creating long-term relationships with clients?
You can’t go far wrong by keeping to deadlines and delivering on everything you promise. I would always advise to under promise and over deliver where possible, as there’s nothing worse for a client than when they are expecting more than you’re actually able to deliver.
Be honest with clients and tell them if their expectations are unrealistic, and provide them with a realistic view on what’s possible. You’ll earn their respect and trust by doing this, and hopefully develop a long term professional relationship going forward.
What top tips do you have for maintaining good client relationships?
When it comes to maintaining existing relationships, clear communication is the key. Depending on the number of clients you have, you may not have time to call them all on a monthly basis. If you can, then it’s definitely good to touch base and discuss what is on the horizon of their business landscape. This way, they may think of a project that they need your help with, but hadn’t thought to contact you.
If a monthly phone call is unrealistic, then look at other options including monthly client e-newsletters that can be sent out with the latest news, offers or blogs. Providing customers with useful information is a great way of building trust. And hey - it’s also a good way of reminding them that you exist.
Where should you start when trying to assess your market value?
Research. Take a look at sites like PeoplePerHour and find out what people with a similar level of experience to you are charging for their services. When I started back in 2010, I contacted some people in similar roles to myself to see what they were charging. I realised I had set my price too low. You need to realise your worth and be comfortable in what’s being charged. Don’t undermine your quality by charging a rate that’s below your level. Equally, don’t try to compete with competitors on higher rates, if you don’t have the same level of experience as them.
With larger projects, I always advise reviewing as you go along. Some projects may take longer than you expect, so don’t commit to a price until you’re comfortable that it can be completed within the time frame that you agree. Experience helps and you will probably get it wrong to start with. Don’t beat yourself up about it, at the end of the day, it’s a learning curve.
What tips do you have for managing workflow and dealing with times of high or low income?
The key is not to take on too much and good time management. Keep track of the projects you are working on and the time it will take. Always communicate the correct deadlines to your customers. If you’re going through a busy period, then good time management will help you keep track of tasks and expected deadlines. There are many tools available for you to manage this. I’d advise using a good CRM system such as Zoho.
With regards to income, you need to budget and not overspend during times when you have a high income. Put some money away and save this for your quiet times. A few of the clients I deal with regularly save into a monthly pot and ensure they have three months worth of bills covered. Then, if need be, you can use this to pay your regular bills when times are quiet. Maybe do an annual forecast, so you are aware of the busy times and then you know you can save the extra income for these times.
What should you do during periods of low income?
I always advise clients to follow the three-month rule. This means you will have set aside savings that would allow you to pay bills for three months, even if you didn’t have any income during that period. If you can follow the three-month rule then great, but if not then you need to review your expenses and see what you can do to save on costs. Try to eliminate all of your unnecessary subscriptions such as Netflix (sorry) and expenses to bring this down. If you’re not able to pay bills, you could ask for a payment holiday from your mortgage supplier and credit cards, or just pay the minimum payment. You don’t want to miss payments, as this will have a negative impact on your credit score. The key is to communicate with them if you can’t meet the payments – don’t bury your head in the stand.
Can you recommend any cash flow management resources for freelancers?
There are many available and yes, some are free (phew). As you can imagine, the free ones are not as sophisticated as paid versions, but they can still come in handy. I’d suggest looking at Zoho and Quickfile for the free ones.
Paid options include Xero or Quickbooks. Many paid apps and resources offer a free trial, so it’s always worth trying before buying to see if it offers everything that you’re looking for. Both Xero and Quickbooks have apps that you can download and upload expenses to, as you go. They also have built in mileage trackers so you don’t miss any expenses.