Freelancing opens up a wide world of possibilities for those stuck in dead end jobs that they hate. Certainly, the idea of supporting yourself with a full-time freelance business is an exciting one. Of course, one of the hardest transitions to make from corporate gig to freelance life is no longer having a regular guarantee of payment.
It’s that idea of having a guaranteed paycheck every two weeks, for the same amount each week (save for commissions, bonuses, or a raise), that ties most people to more traditional types of employment. It’s scary to think about giving that up, along with any other benefits your job may afford you to try your luck out on your own.
Even if you’re billing thousands or tens of thousands of dollars each month, there may be a discrepancy in terms of how much money you actually collect. Herein lies one of the major issues with freelancing, and getting stiffed happens to everyone—whether you’re a seasoned professional or an absolute newbie.
All businesses recognize the likelihood of customers not paying what they owe, and when it comes to taxes, these transactions can be written off as a bad debt expense. Though it’s nice to know that you’ll cut down your taxes when dealing with nonpayment issues, it would obviously be a much better situation to simply receive the money you’ve rightly earned in exchange for providing a service.
The best way to avoid the awful situation of not collecting payment from completed work involves proper preparation. Specifically, here are some things you can do to avoid getting stiffed on client payments:
1. Create an Ironclad Contract
The presence of a contract can mitigate a lot of client non-payment issues, as they understand its use means that you mean business, and that there may be legal repercussions if they don’t hold up their end of the bargain. Note that the presence of a contract is considered necessary to benefit from the protections offered under the Freelance Isn’t Free Act. Try Freelancers Union’s contract tool for help generating a legally sound document.
2. Ask for Upfront Payment
A contract is a great first step, but it won’t completely protect you from a bad client. As sad as it probably sounds, it’s a good practice to “train” clients to pay you for your work. A great way to do this is by setting project milestones: a portion of your fee before starting work, perhaps another portion in the middle of the project, and the last payment to receive final deliverables. The specifics regarding your execution are not as important as securing that first payment upfront, getting the client in the habit of compensating you for your efforts!
3. Manage Your Freelance Business like a Boss
Use professional tools for invoicing, time tracking, and expense tracking. Separate your expenses with separate business credit cards and checking accounts. Keep track of every activity in your freelance business so that you have a better chance of collecting full and fair compensation for the work you do. Improper organization may allow overdue payments to slip through the cracks in your busy workdays.
4. Spend Some Time in New York City
Only half joking, because good ole’ NYC is the first to approve the Freelance Isn’t Free Act, which went into effect thanks to the joint efforts of AND CO and our friends at Freelancers Union.
The Freelance Isn’t Free Act establishes and enhances protection for freelance workers, while establishing penalties for non-compliant companies using freelancers. We can only hope that digital nomads eventually can take advantage of the same benefits, regardless of where they’re currently living.
Tools & Tips to Protect Yourself from Getting Stiffed as a Freelancer
Freelancing is an exciting venture, but there’s still a lot of progress to be made in terms of the protections and benefits these nontraditional career seekers have access to. In order to understand the current state of affairs, check out AND CO’s report on The Slash Workers.
Maddy Osman is a writer and blogger. Read her latest articles on Twitter: @MaddyOsman. View all posts by Maddy Osman