As a Freelancer, you are, on the one hand, focusing on sourcing work or the next project and making sure you get paid, and on the other, managing your cash flow to ensure that you have enough money to pay for all your expenses. It is not an easy task to juggle all these elements, especially when you are starting. Cash flow management can be a huge challenge for the self-employed, and it is an essential part of running a successful freelance business.
Hopefully, this quick guide will give you some helpful tips and advice on managing your cash flow as a freelancer.
Build up your Savings
Always ensure you have a financial buffer at the bank that can tide you over should you ever have a quiet period of work or have unexpected costs and expenses. We would suggest trying to build up enough savings that could sustain you for up to six months to cover any lean periods, missed payments or unexpected bills etc., as well as helping you reduce any financial stresses.
Agree on Concise Payment Terms
All your customers should be aware of your payment terms. These should be communicated from the first meeting, in the contract terms and conditions and again on invoices. It is best to ensure that you receive a deposit up-front is possible. It is also advised that terms and conditions on late payments such as interest charged on late payments should be agreed upon in writing if possible, from the start of the business relationship.
Issue Invoices on Time
The best way to manage your cash flow is to have a robust payment system in place for your invoicing and payments. To ensure you have a healthy cash flow, money should be coming in regularly to keep your business afloat, and for that to happen, you need to make sure you are billing your clients correctly.
You know that from month to month, the amount of work you do could vary, which makes predicting income and expenditure tricky, so to help reduce cash flow gaps, send out invoices as early as possible. It is up to you when your invoice, and with some clients, you may decide on certain payment dates. Some clients will always hold off paying until the last minute, but others will pay up promptly, meaning the earlier you get your invoice out, the quicker you get paid.
As soon as work is completed, send the invoice to your customer, and always include the following:
- Your name.
- Unique invoice number.
- The customer’s name and address.
- The date.
- All goods, quantity, description, and total amount excluding VAT.
- Your payment terms and details.
It is best to send this out by email so that you have a copy of when and to whom it was sent to in case you have any payment disputes.
Forecasting your cash flow in advance is a good way to gain a picture of what your future cash flow may look like. Look at both expenses that need to be paid and income that you should receive in a specified period. Expenses are normally fixed for each month and so that makes projecting the amount that you will need per month much easier to forecast. Predicting how much of your income you should save to cover these expenses is a good way to ensure that you never fall into the red.
Use a good Online Accounting Software
Our in-depth knowledge of the industry and how freelancers work has helped 100’s of our clients make the most of their take-home pay. We use market-leading accounting software such as Xero, QuickBooks, and Freeagent to help you better manage your cash flow as well as sync your bank transactions to help you forecast and budget your expenses. Our expert freelance accountants will provide accounting solutions that perfectly fit your freelancing lifestyle.