If you don’t get paid on time for the work that you do, you’re putting your freelance business is in jeopardy. That’s why you should be familiar with the following invoicing terms every freelancer must know. You’re going to need them to ensure that you get paid on-time – which will keep your cash flowing in.
1. Net 7, 10, 30, 60, 90.
These terms are commonly used in the business world to indicate that net payment is due in either 7, 10, 30, 60, or 90 days after the invoice date.
For example, if the invoice was dated April first and you used one of the most used payment terms, Net 30, then the payment would be expected before April 30.
Even this is a popular term, it can still be confusing. Some believe that the specific days begin from the date the invoice is received, while others think it is from the date the invoice is issued. To avoid this problem, use a term that is more clear – such as, “Days” instead of “Net.”
If you want to keep your cash flow positive, use shorter terms like, “Please make payment within 10 days.”
2. 2/10 Net 30.
This term is related to Net 30. The client is still expected to make the payment within 30 days. However, it they submit payment within a shorter time frame, usually 10 days, they’ll receive a two percent discount off the invoice total.
That small discount should be enough to motivate the client in making a faster payment. But, you are sacrificing two percent of the invoice amount.
3. EOM.
This is short for “End of Month.” If you want to ensure that all of your invoices are paid in the same month as you completed the work, then it’s a good term to use on your invoices.
On the downside, if you send out an invoice at the end of the month, you’re not giving the client much time to make the payment — which means that it probably won’t be paid on-time.
Sending invoices at the beginning of the month give them more time to pay the invoice. you’ll be giving them more time. It’s probably best to only use this term if you’ve always sent out invoices on the same day of the month.
4. 15 MF.
This simply means the 15th of the month following the invoice date. In other words, you’ll be paid on the 15th of every month. This term is an easy to create and stick to a budget and forecast your finances since it’s like clockwork.
Just make sure that this is discussed with the client while negotiating so that you’re both on the same page.
5. Upon receipt.
Invoices that are due upon receipt should be self-explanatory. You’re expecting to be paid as soon as possible after you’ve bill your client. This usually works best for smaller projects or if you have clients that usually pay within 24 hours.
If you send out invoices that are due upon receipt, then make sure you’re offering an easy way for them to pay immediately, like via PayPal or Stripe.
The main disadvantage with this term is that it surprise your client. As such, they don’t give your client any time to make sure they have the money in their account to pay you.
Another disadvantage is that clients may read “Due Upon Receipt,” as “Due whenever I can pay,” since you’re not specifying a payment deadline.
6. Quotes and estimates.
When approached by a new client, they’ll most likely request a quote, quotation, or estimate. These terms mean the same thing: a proposed price for your services.
Creating a quote for your freelance business may seem tricky, but they usually contain the same information. This includes the price, a breakdown of how you’ve determined the price, and a time schedule. Most invoicing platforms allow you to easily convert your quote or estimate into an invoice when the project is completed.
7. Proforma invoice.
This invoice is comparable to a quote or estimate. Unlike a quote or estimate, which is a proposed price, a proforma invoice is the final price that you and the customer have agreed upon.
Think of it this way. A quote or estimate is like saying “I hope we can work out a deal.” The proforma invoice says that “the deal is done.”
8. Interim invoice.
As explained in a previous Due post, an interim invoice, “is a way to take a large project and break the payment down into multiple payments that corresponds to completion of a certain portion of the project. The interim invoice covers that amount of money and provides a way to help with cash flow during large projects.”
9. Recurring invoice.
Recurring invoices are for ongoing services, such as landscaping or web hosting. The amount billed is same each month. If you have a membership or subscription then you’re already familiar with recurring billing.
Recurring invoices guarantee cash flow for your business, makes forecasting a snap, and saves you the time of having to invoice all of your clients each month.
10. Terms of sale.
These are the payments terms that you and your client have agreed upon before starting a project. These terms or sale cover the cost, amount, delivery, payment method, and when the payment is expected or due. As such, these are essential components of any invoice.
In other words, terms of sale are the expectations between both parties so that there won’t be any misunderstandings or disagreements.
11. Payment in advance.
Payment in advance, PIA for short, means that a payment is made ahead of schedule. It’s not uncommon for freelancer to ask for an advance payment for their services when dealing with a new client or a large project. For example, a freelance graphic designer may require a 50 percent down payment before starting a project.
Advances protect freelancers against non-payments and can cover out-of-pocket expenses.
12. Interest invoice.
An interest invoice is an invoice that’s sent to a customer who has not made a payment. This invoice is created with only the interest listed and includes the time period, the month or months of missed payment, and the interest on those missed payments.
For example, if you charge a six percent interest rate and the invoice is for $1,500 and it’s 20 days late, then you divide 20 by 365. Multiply that result by .06 and finally multiply that figure by 1,500. The interest charge would come out to $4.93 for the 20-day period.
Setting late terms and interest is highly recommended for all freelancers. But so is sending reminders to late-payers before you keep sending them interest invoices.
13. Line of credit pay.
This payment option allows the client to pay their bills over a specified period of time — typically on a monthly or quarterly basis. In other words, it’s allowing the client to purchase your services on credit.
Because of the risk involved, and the ability to decrease your cash flow, this is more commonly used among larger companies and not small-to-medium sized businesses or freelancers.
14. Early payment discount.
You can always include an early payment option with an appealing discount. Typically this is between 5% and 10% and is payable when a job is completed.
Offering early payment discounts is an effective way to encourage the client to pay your invoice ahead of time. But, it’s particularly useful for larger gig,or if you’re working for a client where you invoice might go unnoticed.
15. Invoice factoring.
If you need money immediately, or you want to raise some cash to grow your freelance business, then you could consider invoice factoring.
This is where you hand over your invoice to an invoice factoring company. You’ll receive an 85% advance in about one day. That comes in handy when you need to cover the gaps in cash flow.
Keep in mind that these companies will charge you a fee, so make sure that you read all of the fine print.
A company like BlueVine charges a fare 0.5 % fee per week. They even allow your clients to continue to make payments under your business’ name.
Other ways to secure working capital would be through companies like Kabbage, PayPal Working Captial, or Fundbox.
Putting it altogether.
In closing, here’s what you should always do to ensure that you always get paid on-time.
- Bill weekly. It makes invoicing a priority and budgeting easier for you and your clients to.
- Charge upfront. Get deposits upfront, and invoice ahead of time.
- Always use a contract so that you’re guaranteed to get paid by clients.
- If possible, live off last month’s profits. This prevents you from stressing out over money. If you do need cash, tap into your savings, ask clients for an advance, or consider invoice factoring
- Make sure that what you’re charging allows you to make the income you want. Not sure? Use a freelance rate calculator to steer you in the right direction.
