Hey Freelancers, Here are the Do’s and Don’ts of Getting Paid
With James Fuller, co-founder and CEO of Hnry.
The freedom of being your own boss – choosing your own hours, clients, projects, and so on – is amazing, but it also comes with loads of new financial responsibilities like paying your own wages, taxes and business expenses. As freelancers, we obviously want to spend most of our working day on billable hours and it can be tricky to find the time to get those invoices out.
Here at Hnry we work with a lot of freelancers across Australia and New Zealand, which gives us a lot of insight into what works – and what doesn’t – when it comes to getting paid.
Here are some of our do’s and don’ts of getting paid.
Do: Invoice promptly
This should go without saying, but an astonishing number of our freelancers don’t invoice as soon as the job is done and signed off.
Sure, some clients can be counted on to wait until the due date before paying. But many others will pay immediately after they receive the invoice.
What our data tells us is that those freelancers who send invoices sooner also tend to get paid sooner.
And getting paid is sweet.
So, here’s a really simple process to immediately improve your cash flow:
Step 1: Send through the completed job to your client
Step 2: Get your invoice ready to send
Step 3: Send the invoice the moment your client signs off or approves the work
Don’t: Send fancy invoices
Most freelancers are creative in nature.
For many creative types, when it comes to something like invoicing, there is a huge temptation to give that creativity free reign over the process. Freelancers are all about their personal brand, and sometimes that personal brand creeps into things it shouldn’t – like invoices.
Picture for a second the person who will pay your invoice. Not the person you send it to, the person who will pay it.
Jill from Finance or Rory the Office Manager aren’t going to “ooh” and “ahh” over your choice of font or your watermark – they’re going to look for information.
Here’s what they’ll be looking for:
- Your trading name & contact details
- The client’s name & contact details
- Payment details (your bank account number or instructions on how to pay via credit card)
- A description of the service(s) you provided, including the quantity and the unit price of each service
If you’re registered for GST, then you must also do the following:
- Include the phrase “tax invoice” on the invoice (it goes nicely at the top!)
- Have the total price include GST (and you should specify the amount of GST charged on the invoice)
- Include your GST registration number
Including the above information – and only the above information – in a clear and easy-to-read format is a great way to look professional and endear yourself to every finance person you come in contact with.
Do: Chase Unpaid Invoices
Unpaid invoices are one of great challenges of being a freelancer. The unfortunate truth is some businesses just can’t be bothered paying invoices until well after the due date.
The data we have around this is staggering.
Staggering Invoice Fact #1: 60% of Hnry customers’ invoices get paid after the due date has already passed.
Staggering Invoice Fact #2: On average, Hnry customers’ invoices get paid 10 days after their due date.
But there is a cure – the polite chase.
To demonstrate, let me introduce the Hnry app and its automatic invoice chasing feature. For our customers who activate that feature, our app will automatically follow up on any unpaid invoices with a professional and polite message, at 2pm the day after the due date.
It’s just a nudge, but the thing is – it works.
Customers who use that feature get paid, on average, 8 days faster than customers who don’t.
So be diligent when it comes to chasing your unpaid invoices. Be polite. Be professional. You really will get paid faster.
Do: Set aside money for taxes – every time you get paid
We see this all too commonly with people who have just signed up for Hnry: they haven’t been separating out their tax money as they get paid.
This can present a few different problems, depending on the person.
The worst-case scenario is the person hasn’t limited their spending and has spent some or ALL of their tax money. This creates huge tax problems that can, in some cases, last for years.
More often than not, however, the person hasn’t spent their tax money – but all their money is in a single bank account and they don’t know what money is theirs and what money is the ATO’s.
This isn’t catastrophic; after all, they’ll find out at the end of the tax year when they file their taxes.
But not knowing how much money you actually have can cause problems with financial planning, anxiety around big purchases, and needless worrying about bigger-than-expected tax bills.
Separating out your tax money into different accounts is hugely beneficial – as long as you’re disciplined about not touching that money until it’s time to make your tax payments.
Don’t: Set aside too much money
The reverse side of this is the people who set aside too much money.
Frustratingly, we sometimes find that people have been advised to set aside an ungodly amount of tax every time they get paid – sometimes as much as 37%!
This is a very old-school way of thinking about tax: avoiding end of year tax bills at all costs by setting aside way too much money from every pay.
The problem is – what if you need that money?
Sure, finding out you actually have $5,000 more than you expected at the end of the tax year can be a great feeling, but wouldn’t it have been better to have that money throughout the year?
Having that money throughout the year allows you to build better financial plans and make better decisions with your money.
So what we recommend is to set aside the right amount of tax money every time you get paid.
All you need to do this is a reasonable estimate of your annual income. I know for some freelancers this can be a challenge, but the estimate doesn’t have to be absolutely precise. You can even add a margin of error to it if you feel uncertain.
Once you have your income estimate, go find an online tax calculator to help you find out your effective tax rate.
Once you have your effective tax rate, all you need to do is set aside that exact percentage (along with GST, Medicare, and Student Loan!) from every payment.
It’s not the easiest process, but at least you’ll have peace of mind knowing you won’t receive any unexpected tax bills.
About the author
With James Fuller, co-founder and CEO of Hnry, a service that automatically pays and files taxes for Australian freelancers.
When I was self-employed I had to deal with all the painful tax & financial admin on my own – and I hated it.
That’s why we started Hnry. We wanted to take the hassle out of freelancing, so others didn’t have to deal with the same challenges that I did.
Hnry automatically pays and files taxes for Australian freelancers, so they never have to think about tax again. If that sounds right for you, check us out!