There are numerous benefits to being a freelancer but a guaranteed monthly salary is not one of them. As a freelance professional you rely on a steady stream of clients and their ability to pay you on time. As such, cash flow can be a problem, especially when you don’t have plans in place for a temporary lack of clients, late payments, or sudden unexpected expenses.
Maintaining a healthy cash flow is all about setting up plans and procedures before potential problems arise. It means thinking ahead and developing strategies and habits that are cultivated as early as possible in your freelancing career.
Being a freelancer can feel scary at times, especially when clients are hard to come by. With careful preparation for these emergency scenarios you can ride the wave and reduce any associated stresses, money worries, and financial problems.
We’ve collected together some of the ways you, as a freelancer or small business owner, can create a healthy cash flow with just a few simple changes and implementations.
Let’s begin with the most important one.
Accurately record all income & expenditure
It’s extremely important to keep an accurate record of your income and expenses throughout the year. Not only is a record required when paying taxes but you also get to see just how much you’re earning and how much you’re spending. It’s wise to update your income and expenses record as frequently as you can – at least monthly – and this will reduce any panic or shocks at the end of the year.
Forecast earning requirements
Using previous records or new income requirements, calculate how much you need to earn over a set period of time. Whether it’s three months or one year, deciding on an income goal and plotting of related milestones, can help you ensure you’re on the right path when it comes to income and expenditure. You can check your progress at the end of each week.
Analyze data every quarter
As well as checking progress weekly you can also carry out a more thorough evaluation by analyzing your collected data, perhaps every quarter. Using your records, you can dig down into where you’re losing too much money and where you’re not making enough.
Using time-tracking data you can analyze how certain admin tasks or paid services you provide can be speeded up or even delegated. You can also spot where you’re spending money on tools, programs, or subscriptions you don’t really use or need, and a whole lot more.
Raise your rates accordingly
If you’re working long hours and can’t see a way to meet your income needs, then it might well be time to raise your freelancing rates. This can quickly increase your cash flow while at the same time reducing the number of hours you work. Higher rates also signal to potential clients that you are more skilled and professional. They also repel those bad clients, who demand work for pennies, and who continuously waste your time with ridiculous requests.
Establish sensible payment terms
When you establish clear and sensible payment terms, you’re more likely to get paid on time and in full. Terms can include a requirement to be paid upfront with a 50 per cent deposit before starting work with new clients. This ensures you get money faster than you would if waiting until project completion.
When you write invoices, it’s also important to state when you want to get paid, whether it’s immediately or a set number of days after the invoice has been sent.
Send invoices early
When it comes to invoicing, it’s important to send the invoice out as soon as possible. When you delay invoicing, it’s easier for the client to also delay their payment. This is not necessarily malicious on their part. It’s just that business owners and employees are busy and might see your late invoice as something to complete later rather than sooner, due to your own lack of urgency. The faster your invoice is paid, the faster you get money in the bank.
Simplify payment processes
Make it easier for your clients to pay you. The easier it is for them to make a payment, the sooner they’ll pay. When a payment process is complicated or confusing then both you and your client waste precious time and energy sorting out the payment problems.
At Invoice Ninja, we make payment processes much easier. When you send out an invoice, the payment gateways you offer will be included. All customers have to do is click and pay directly from your invoice. Simple, fast, secure, and effective.
Invest wisely in tools and software
Maintaining a healthy cash flow often means investing wisely in tools and programs that can speed up payment processes and boost your time management as a freelancer. Good invoice software can allow you to automate a lot of the financial aspects of your work. Time-tracking tools can help you decipher just where you can increase productivity, and as a result, make more money, faster.
Save money early on
Save a percentage of the money you earn for a rainy day or year. As a freelancer you’re at the mercy of the unexpected, whether that’s a business failure, a health problem, or a downturn in the economy. You also have rent or a mortgage to pay, as well as a plethora of other bills, savings, and expenses which can quickly overwhelm you when you hit a lean month or two.
Look to create a three or six-month emergency savings cushion where you can still pay the bills even if not working at all.
With careful planning and the implantation of simple strategies, you can quickly improve the health of your freelancing cash flow. Being a freelancer doesn’t have to be scary or stressful. When you think ahead and plan accordingly, and avoid common freelancing mistakes, you can make your life as a freelance professional a lot more comfortable and secure.