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13.09.2017

How to Deal with Late Payment Terms as a Freelancer


Late payments aren’t just some nuisance freelancers like to complain about – they can be a significant financial risk to the point of endangering your entire career. That’s why we’re writing this article.

If you’re just starting out as a freelancer, it might seem reasonable to “play by the rules” when your client casually mentions paying in 30 days. Paying in 30 days isn’t the rules, the rules are what both sides agree upon. So it is up to you and the client to find a reasonable timeframe that suits you both. If you can’t negotiate that with a client, there is a couple of ways to make long term payments hurt less.

First, we’ll cover why net 30 and the likes can be extremely dangerous to freelancers and then we’ll share five strategies to minimize or prevent the danger.

Why net30 and its bigger brothers are bad for freelancing

We recently covered why freelancers should avoid Net 30 on our blog, but again to sum it up: Net30, 60 and 90 (the numbers correspond to the amount of time people will take to pay you), all have a couple of similar problems.

Firstly, freelancers are not banks that can afford to give out what are essentially loans without interest. You sold a product and the client would now like to pay you thirty or sixty days after the work is done. This is no way OK – and as freelancers are often on a tight budget, it can potentially kill your business. Your bills aren’t going to pay themselves.

Moreover, most clients will take net30 as an invitation to pay at the latest possible moment. To them, establishing a 30 day timeframe isn’t saying “you have 30 days to pay me”, it’s more like “pay me in exactly 30 days”. That happens for budget reasons, but shouldn’t be your concern as a freelancer.

Last but not least, net30 and the likes can often be confusing. Are the thirty days over once you deliver the project, once you send an invoice or, say, when the website you built goes live? You can bet accountants will try to take advantage of such unclear terms and extend the long term payment even further.

How to prevent or minimize the losses from long payment terms:

1. Try to negotiate a reasonable timeframe (e.g. 7 calendar days)

First things first – try to just figure it out together with your client, as a team. Explain to them why a timeframe of one month doesn’t work for you and what your concerns might be.

Believe it or not, there are times when clients just include the 30 days in the contract because that’s how they’ve always done business with other companies. But they can often be convinced to change that for freelancers. Seven days are a reasonable time you can aim for.

2. Have an up-front or step-by-step fee

One of the ways to minimize the losses of long term payments is to split up the amount of money your client has to pay you. There are generally two ways to do this. The first one is establishing a lump sum up-front – as soon as you start working on the project you get 20 to 50 percent of the payment immediately. Depending on whether or not the client trusts you, that can be a good way to handle the situation.

Another strategy a lot of freelancers love is splitting up the project in different steps. Let’s say you’re writing a ten page tutorial for a software product. The first step might be the general structure and a few sentences for each chapter. The second could be the initial draft, the third the finished product. If you make sure to get a third of your payment for each step, long-term payments will be easier to manage.

3. Request full payment upon delivery

To avoid any confusion about when you’re getting paid, you should always establish what “finishing the project” actually means. As a rule of thumb, always go for full payment upon delivery. Going back to the example of building a website, you’re done as soon as your part of the job is ready.

If the client wants to engage writers to fill it with content or do an internal test run for a couple of weeks, they’re free to do it. But you’ve done your job and are entitled to your money.

4. Have a late payment fee

If nothing else helps, late fees can be a good incentive for a client to pay on time. You might want to give people the benefit of the doubt by establishing some wiggle room.

In your contract, that might look something like this: “Should the payment not be received in three days after the initially established date, a late fee of X is due.”

I would recommend going for a percentage of the total project fee, because the pay varies from project to project, anywhere between five and ten percent should be fine, but it’s up to you.

5. Always have a safety cushion

Sometimes, clients won’t budge, regardless of late payment fees or any other precautions you might have set in place. In that case, you have to ask yourself the following question: “What is this client worth to me?” If this is a client you’ve had a long business relationship with or the project is especially lucrative, you might want to swallow down and still take the terms.

But if that’s not the case, don’t be afraid to say no (here is how to do it the right way) – that’s a lesson many freelancers have had to learn the hard way.

What is your usual timeframe for getting paid? Share and discuss with your fellow freelancers in the comment section below this article!
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