How to set clear payment terms for freelance work

Customer matters

4 May 2016

A recent survey carried out by freelance marketplace Upwork found that 48% of freelancers have missed personal bill payments because of late-paying clients.

And with a thousand items on your to-do list as a freelancer – between juggling various clients and projects – the last thing you want to be spending valuable time on is credit control.

To help you tackle the problem of tardy client payments, here's a quick guide to setting clear payment terms.

Know your rights

Government guidance clearly states that self-employed professionals can set their own payment terms. If clear terms aren’t agreed in advance, the default deadline for payment is 30 days after receiving your invoice or services. After that, if a client repeatedly ignores requests for payment, you are within your rights to charge interest or use a statutory demand to formally request that the debt is repaid.

Agree in advance

While you’re within your rights to set your own payment terms, corporate clients may have fixed billing procedures that are difficult to shift. In these cases it’s a matter of compromise, or concession, as you see fit. Whatever the outcome, make sure you have a copy of the agreed terms and that you’re happy with them before starting the project.

Confirm the process

There are four key pieces of information to include when setting payment terms:

  • Your rates
  • Your expenses, and what they cover
  • When you can invoice for your work
  • When they'll pay for the invoice

Again, it's best to make sure everything is agreed up-front to avoid disputes down the line.

Set deadlines

If your work requires steady cash-flow, or you expect to rack up hefty costs at the start of a project, it’s both understandable and acceptable to expect payment sooner, or to split the cost across two invoices – perhaps issuing one at kick-off and one on completion. The key thing is clarity, so agree these payment deadlines and set them in stone.

Consider advance payments

Asking for full or partial advance payment can help to minimise your risk when taking on new business. To sweeten the deal and encourage prompt payment, you might consider offering discounts for advance payments.

Include non-payment clauses

It’s not fun to raise the issue of non-payment early in a relationship, but it beats a legal battle later on. These clauses should include:

  • The interest you will charge in the event of non-payment (usually statutory interest of 8% plus the Bank of England base rate)
  • When interest charges will begin accruing
  • Whether you’ll charge recovery costs in the event of persistent non-payment

Use your invoices

Your payment terms aren’t just to be agreed and signed off at the start of a project, they should be reiterated on your invoices to avoid confusion or disputes. We also recommend using your invoice to break down your services as clearly as possible.

Providing a detailed breakdown of how you’ve spent your time, how many days or hours of work have been completed, and the projects you’ve delivered, shows the client what they’re paying for, and helps you to keep track of how accurate your project pricing is.

Don't fear change

If your work, situation or client structures change, it’s perfectly acceptable to introduce new payment terms.

Whatever your profession, don’t be afraid of approaching your client, entering discussions and asking for payment – because up-front transparency and candid communication will help you both in the long run.

Are there any tips on setting payment terms we missed? Tell us about it in the comments below.