How and when to get paid
In the end, what matters is not the money you earn or the money you spend: it’s the money you have.
If you live anywhere near the demographics targeted by this site — freelancers, remote workers, and solopreneurs — then this means that at some point in your working life you chose to trade security for flexibility. From a worker’s point of view, security is what comes with — among other things — a full-time job at a company located near you. Flexibility and freedom are what you get when you work on your terms and time. At least, that’s the theory.
The trade-offs between security and flexibility are many, and for the most part, they remain unpredictable. The gig economy era is on a roll. To thrive in, or at the very least survive as an independent worker in this new and disruptive era of capitalism, as a freelancer you need a constant flow of money. When your money runs out, and once you’ve exhausted all your credit, you will quickly run out of options. You will have to delay, and eventually stop paying the critical suppliers which you and your work depend on. In other words, you’ll lose control over the gears that keep your life running.
Running out of money, even temporarily, is a very bad corner for any independent worker to be pushed in. The situation is even worse for those of us who qualify as knowledge workers. In no small part, this is because the safety net which society traditionally provides to all citizens is not only getting thinner by the day for political reasons, but it is also made quite flimsy — by design — because of the worker’s legal status. The chances are that the so-called social safety net won’t do much to catch you if and when you fall.
Let’s be clear: without a continuous, uninterrupted flow of money to grease the gears of the machine, you will end up in a place where you can’t afford to work anymore. Without money, the mechanic that keeps the machine alive will grind to a halt. You have a rent to pay. You have to pay taxes, insurances, and rent. You have to feed your ISP. You need to keep paying your accountant, your car, your utilities, your employees, VA’s and SaaS services. You need to keep yourself alive, to sleep, eat and drink. In the end, when all is accounted for, you probably have dozens of recurring fees that need recurrent financing. Many of those obligations are a vital part of what you’re delivering to your customers.
You need the money now, and here’s how to get it.
Like most solo or small businesses, you’re busy all the time. You can’t afford to waste that time on unproductive collateral. In the end, you tend to minimize the time you allocate to tasks such as accounting; like most, you probably invoice your customers once every few weeks. This is mistake number one.
You need a shorter accounting loop to get paid faster. When it comes to being paid, the effective cost of delays is two-fold:
- Your deferment gets added to your customer’s delays. For example: if you allow your customer to pay within 30 days and your invoicing cycle is monthly, then you end up with a potential of 60 days before getting paid for your time.
- The value of your services or product tends to diminish over time. Your customer is much more likely to value your services right after you completed the task than 1 or even two months after the fact. The higher value a customer places on your work, the faster they will pay you, and the more likely they will use your services again.
The solution is to aim at automating the process and increasing the cadence of your accounting cycles. The invoices that cannot be automated should be manually generated once a week. Set up a tighter schedule for your internal accounting and keep doing it. Increasing the cadence of your accounting cycle also has the side effect of making everything more efficient over time: you get better at those tasks you are repeating.
To shorten your payment cycles, even more, try and convince your customers to use a faster transfer service. Next, to one-on-one cash delivery, electronic fund transfers are the fastest, most secure and efficient way to move money around.
The downside of those faster services is that they come with often non-negligible service fees attached. Services such as PayPal and Stripe will retain a percentage of your income as fees. In many cases, the fees are worth it and a relatively small penalty to getting the money into the loop faster.
Accepting credit cards is an option often frowned upon by freelancers and contractors with thin cash flow. Like most electronic payment processors, credit card payments involve fees, which are sometimes supplemented by the fees charged by a third party processor. As with PayPal and Stripe, credit cards fees should be evaluated relative to the speed of the transaction and the risks that a slower money flow poses to your business.
In the end, the risks associated with your money flow need to be balanced against the solution you choose to implement. There’s no one-size-fits-all solution: the particulars of your financial situation should drive your decision. Consult an accountant if you don’t have the skills to do so yourself.