How freelance clients can better manage their cash flow
Pay day is the highlight of most people’s month. But for clients who earn their entire income, or most of it, from freelancing, pay days are not a certainty. Sometimes work is plentiful and clients cough up on time perfectly. But other times work dries up or clients struggle to pay and invoices aren’t cleared fast enough.
Adapting to this often ad hoc way of working can be a huge challenge. Accountants can support freelance clients in a number of ways so we’ve put together these practical tips to help steer your clients in the right direction.
How much is your client charging as a deposit?
Large or complex projects should attract an upfront payment of a deposit. How much this is depends on the industry your client works in and what kind of work they’re doing. However, many freelancers will ask for 30-50% as a down payment before they begin working. Not only does this provide some peace of mind but it can help predict cash flow too.
What type of contract are they offering?
Terms and conditions need to be laid out clearly so both parties know where they stand. Every client and every contract should be tailored to requirements and signed.
The terms of payment are obviously a crucial part of this contract. Make sure your client has been explicit about when payment(s) are expected, not least because it’s once again crucial for cash flow forecasting.
Another thing you may want to discuss with your client is the possibility of working on a retainer basis. This would bring them a more predictable set income each month which many freelancers find works well. However, again this depends on the nature of their work and whether they’ve collaborated with a particular client before. Some freelancers also don’t want to be ‘tied down’ to one client by a retainer, instead preferring a more casual approach.
The important thing is that retainers are documented properly and are watertight. Any cancellation conditions should be clear, as well as how many working hours are expected and the work that should be completed during that time.
Do their invoices contain the right details?
This is a quick win for your clients. Invoices should be uniform and include the date, the amount due, the invoice number, a breakdown of the work carried out and how they wish to be paid. Most freelancers request a bank transfer so will also need to include their bank details. It all sounds rather obvious perhaps, but it’s actually pretty easy for even the most established of freelancers to get wrong.
What are the payment options?
There’s a broad range of payment offers freelancers can offer their clients these days. Many sole traders will go for a bank transfer or PayPal but others still prefer a cheque. Some are happy with credit card payments, even with the associated fees.
It’s worth discussing the payment options your freelance clients currently offer with a view to potentially adding more.
Discuss their plans around overdue payments
Just about all freelancers will experience overdue payments during at some stage. For some it’s an inconvenience, but for many it will be a potentially catastrophic financial blow.
Freelancers should gently remind clients when a deadline is coming up. Late fees should then be applied if the deadline passes without full payment. These late fees should include any extra time your client has had to spend chasing the payment, as well as any other reasonable costs.
Quick tips for dealing with payment reminders and late payments
Some of your freelance clients will have been self-employed for years and know exactly what they’re dealing with. But others will be new to the game which is where a few pointers may be appreciated.
Freelancing requires a thick skin and learning to be more assertive is never a bad thing. Your client may not be used to asking for or discussing money, and of course it is in many ways still a taboo subject. But it’s your client’s hard-earned cash and they should be encouraged to go after it in the right way.
Maybe freelancers will be frightened of looking “desperate” or be concerned about annoying their clients. And of course there’s no need for the to be aggressive or rude, especially as a quick email reminder generally does the trick.
However, if after repeated reminders payment is still not forthcoming, there are still things your client can try before kicking it up into a dispute.
Recommend that they:
- Phone their client directly to discuss payment, rather than emailing (emails are all too easy to ignore at this point)
- Send a Letter Before Action (LBA)
- Aim to resolve the issue amicably via mediation
Obviously the last resort is the small claims court. But it’s worth pointing out to your client that any kind of legal process is likely to be pricey so it’s a course of action that’s best avoided. The debt itself would also have to be fairly substantial to make it worth their while.
Tax Cloud can benefit both your clients and your practice
R&D Tax Credits represent a generous tax relief scheme that’s been offered by the UK government since the year 2000. It allows companies, regardless of size or industry, to claim up to 33% of their eligible R&D costs back, either as a reduction in Corporation Tax or as a cash lump sum.
But applying for R&D Tax Credits is something of a minefield at best and understanding which costs are eligible and which aren’t is a challenge even for the most experienced of accounting professionals.
The cloud-based portal allows you to make a simple, cost-effective claim on your clients’ behalf by taking you through the step-by-step process, depending on which partner package you choose. It’s the perfect way to expand the services your practice offers without the extra employment costs and overheads.
Find out more about why partnering with the Tax Cloud makes sense by checking out our recent blog post: Partner with Tax Cloud to benefit your clients and your practice.
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Tax Cloud is an R&D Tax Credits claim portal.