Winning Freelance Payment Terms for Invoices and Contracts
As a freelancer, you should reduce friction in all aspects of the business. One key component of freelance work is the payment terms and conditions. It would help if you designed it so that your client will be comfortable and your business interests should be safeguarded. It should be agreed upon in the initial phases before the project is agreed upon and documented in the freelance contract and then quoted in the freelance invoices raised when seeking the payment.
"Money is usually attracted, not pursued." - Jim Rohn
In this article, you will learn about the popular freelance payment terms that will help you will more contracts.
Freelance contract and payment terms
Documenting the payment terms and conditions in the freelance contract is critical. If a client disputes a payment, this particular section in the freelance contract will help defend you. You should discuss the terms in detail even if the client doesn't ask for them. You should bring this into your project quote discussion, which is not a topic to brush under the carpet. If you are hurrying to sign off on the project and get an advance, even then, you should dedicate some time to discuss payment terms. After the agreement, it should be duly documented in the freelance contract and signed by both parties.
What should the payment terms and conditions describe?
Payment terms and conditions are a broad topic and should cover many aspects of payments. It should describe whether there will be an advance payment and, if so, how much should be paid. How does the payment schedule sound to you? Will it be multiple parts? Or attached to a milestone release or based on duration or calendar.
- Advance payment
- Schedule of payment
- Late fee
- Payment mode
Should a freelancer charge a late fee? It is a debatable question. There are different factors in deciding that. Then finally, the mode of payment. All these need to be discussed, agreed and documented at the start of the project. Please be open to talking about these details. You should communicate these terms effectively with the client and get their concurrence.
Advance payment in freelance
Only start freelance work with an advance payment. A common mistake by novice freelancers is not asking for an advance payment. What stops is the thought that we may not get the work order if we ask for an advance. Contrary to this thought, serious clients may think otherwise.
A professional freelancer will only work with an advance payment.
The client may consider you a beginner if you do not ask for an advance payment. So it may work against you.
How much advance payment should a freelancer ask for?
50% is the general norm in the industry. Irrespective of whether you are a graphic designer or a freelance writer or a web developer, or a video editor, in any area, half the amount is the norm. If the project cost is significantly high, consider 1/3 part payment as an advance. Agreeing for a 5% or 10% advance equals not getting one. If you work on time and material freelance contracts, for example, weekly or monthly payments, then ask for one payment unit as a deposit. For example, one month's payment should be given in advance as a deposit which can be adjusted when the project ends.
Payment terms (Schedule)
Following are the widely used payment terms.
- Due on receipt
- Net (X) days and net days with a discount
- Installment payments
- Progress payments
- End of week/month
Due on receipt
Freelancer's most popular payment term is 'due on receipt.' As a freelancer, you will be sending an invoice majority of the time after an oral confirmation from the client. So obviously, the term will be due on receipt. The client should send the payment immediately when the invoice is received. Here instantly means within minutes, and you can start sending follow-ups a couple of days after sending the invoice. You will be using this payment term when the project is of small size and has just one or two payments on the whole.
Net (X) days and net days with a discount
This is the most popular option as a generic payment term. The possibilities are net 15, Net 30, Net 60, and Net 90.
Net 15 means payment is due 15 days after the invoice date.
For a freelancer, Net 60 or Net 90 is too much of an option. You cannot wait 90 days for payments as a freelancer. The cash flow will get affected. If you enjoy a good relationship with your client, you can go for Net 30, the maximum.
2/10 Net 30 is a variant of the above option. The payment is due within 30 days from the invoice date. You give the client a 2% discount if paid within ten days. This will encourage the client to make a quicker payment.
You can agree to get the payment in multiple installments for large freelance projects. Like for example, a three-equal part payment. An advance payment, an interim payment made in the mid of the project, and a final settlement made before the delivery.
This is the most widely asked for payment terms by a client to a freelancer. Payment will be against the progress you make. After a draft version or wireframe is completed, the first payment will be released. Then on the demo, the client will make the second payment. Then when the project is shipped, the client will make the final payment.
End of week/month
Payment is based on time. There won't be any project-based milestones. You will keep on working and delivering regularly. The work, delivery, and amount will be independent of each other. By the end of every week, you will submit a timesheet of what you did the whole week, then ask for payment. This kind of payment is generally used in the freelance world when the work is of an R&D nature, the requirement clarity needs to be improved, or the project will evolve as we work scenarios.
Should a freelancer charge a late fee?
Charging a late fee as a freelancer may sound aggressive. It would be best if you decided this based on different factors. A late fee should be okay if you work on time-based billing (hourly), discuss this during the project quotation phase, and get the client's agreement.
"Late fees are a tax on being unorganized." - Dave Ramsey.
If you bring this as a surprise only after realizing the poor payment practices of the client, then there will be friction. It would be best if you talked about this at the quote stage. As a freelancer, you have to be sure about the cash flow. The more your cash flow is concrete, the more you can have a stable business model. People are moving to SAAS for a predictable cash flow, even in the product business.
Levying a late fee will push the client toward making a prompt payment. I have also discussed late fees in how to write a strong letter for outstanding payments to clients.
Freelancers work globally and get paid across the border. There are many ways to transfer money internationally. It would help if you chose a secure, fastest, and low-cost option as a freelancer. Your client should also feel confident about the method as they will be making the transfer. A trusted and popular choice is PayPal, and you can create an account quickly.
A bank wire transfer is the best among all options. Please choose the one that best suits you. Also, you should get the client's thoughts and document them in the contract. It would be best to remember to include the payment mode in every invoice to the client. It is not a piece of redundant information. It will help the client to make the payment quickly.