Gig workers comprise 36 percent of the American workforce, according to Gallup. If you’re one of these 57 million freelancers, you’re probably enjoying the freedom and flexibility of this nontraditional work. However, freelancing comes with its own set of obstacles you won’t necessarily encounter at a 9-to-5 job. While self-motivation, time management, and organization all lie on your shoulders, perhaps the greatest hardship of gig work is missed freelance payments and figuring out what to do when you don’t get paid.
Missed Freelance Payments: What to Do When You Don’t Get Paid
Reliable income isn’t always synonymous with freelancing, so if you find a client who always pays on time, do what you can to maintain that professional relationship. For the rest of your clients who forget to pay, are always late to pay, or outright refuse to pay—you need a plan. With a mix of proactive and reactive strategies, you can resolve missed freelance payments without sabotaging future or current work relationships.
An Actionable Plan When a Client Forgets, Bails or Is Late on a Payment
In an ideal scenario, you have an airtight contract to fall back on if a client doesn’t pay. But if you’re new to the freelance game or have worked with a client for an extended period, you may forego a contract. Although skipping a contract is an easy way to get burned on a payment, even if you have a contract it’s not always cut and dry.
Up to 58 percent of freelancers receive late payments with an average payment date 18 or more days beyond the contractually stated date. Clients avoid payments for a number of reasons, and not all of them are personal. A lapse in funding, a change in personnel, or lack of payment from their customers can cause your client to miss a payment. Other clients feel justified to not pay you if they don’t use your completed work; they pay in “exposure,” or they don’t take you seriously. Whatever the client’s reasoning, you need an actionable plan that reminds them it’s time to pay you what you are owed.
Check the Contract Payment Terms
If you have a contract, almost all include a section that outlines the payment terms. This portion of the contract dictates your contracted rate and payment date, as well as late fees that may be incurred by the client. Before you have a minor meltdown or send a strongly worded letter to your client, make sure that your client is outside these terms. If they’re within the guidelines or just a day or two late, you may want to have some leniency, especially if they’re a valued client.
Send Multiple Invoices
Sending clear, accurate, and timely invoices is crucial for getting paid on time. However, many freelancers struggle with invoicing because it’s outside their realm of expertise. If you’ve already sent an invoice and haven’t received payment, wait a week before sending a follow-up invoice. Accompany this invoice with a gentle reminder that your client is behind on their payments. If you still don’t receive payment, send a third or maybe even a fourth invoice before taking more drastic measures.
Sending follow-up invoices gives your client the benefit of the doubt and demonstrates trust. Whatever you do, don’t fall into the trap of sending a daily invoice; it seems accusatory and argumentative and does nothing to expedite the payment process. You may feel frustration or anger toward the client, especially when you need the money, but alienating a client is one of the biggest mistakes you can make.
Make a Phone Call
When your client has ignored multiple invoices, it’s time to add a personal touch. As a freelancer, you don’t typically meet your clients face to face, but making a phone call is a way to enhance your image while getting to the crux of your payment issue. Although digital nomads may find calling difficult, domestic freelancers can usually find their client’s contact information on the internet.
Once again, avoiding an accusatory or angry demeanor will make the situation go more smoothly. The person you talk to on the phone may have no knowledge of your business situation, and an act of kindness is good karma moving forward. Start by asking if you’re talking to the right department. After you’ve found the person who can make or authorize payments, ask if they’ve received your invoice. If they haven’t, offer to send it again. You might be able to solve the situation over the phone, while also showing your level of professionalism and assertiveness.
Consider Suing or Writing-Off the Loss
After numerous invoices and a phone call, you still don’t receive your payment. Chances are, this nightmarish situation isn’t going to end with money in your account. That’s when it’s time to weigh your options between litigation or writing-off the account as uncollectable. Both have their advantages with respect to time and money, so you may want to contact an attorney for advice.
If the contract is sizable, consider pursuing payment in a small-claims court. Keep in mind that you’ll have to pay for attorney fees and court costs. Also, even after a decision in your favor, there’s no guarantee the client will pay you. However, bad publicity and attorney fees may push your client toward a settlement in or out of court.
If you’re only owed a few hundred dollars, you may want to consider writing-off the accounts receivable, also known as a bad debts expense. You won’t recoup any of the money owed to you, but you will be able to write the amount off on your taxes as an expense. It’s obviously a worst-case scenario, but even a write-off will give you a small consolation prize for your efforts.
If have not been paid and the project is not complete, stop working. Yes, a client can find another freelancer to finish the project, but typically it’s easier for a client to settle their pay dispute with you rather than tackle the costs and time associated with finding and hiring a new freelancer. In addition, you set another precedent for your work and payment while pushing your invoice to the top of the pile.
Terminate the Client Relationship
The reasons (or excuses) for missed freelance payments are numerous. The delinquency may be caused by a simple clerical error or other employee-related situation that impacted their payment to you. Other clients may just not have the capital to complete their end of the deal. When you encounter these problems repeatedly, the question becomes whether to keep working with them in the future.
Ending a business relationship with a client who refuses payment is a no-brainer, but you should use your business savvy to choose whether to maintain relations with a client you have to badger each payment date. Sometimes, terminating your agreement is the more logical answer. You may miss out on some cash in the near future, but a reputable client who pays on time is worth their weight in gold.
A Proactive Approach to Prevent Missed Freelance Payments
Now that you know how to tackle missed freelance payments, the next step is to integrate a proactive approach so you won’t have to deal with such a devastating scenario. Fortunately, this isn’t as difficult to implement as you may think. Here are a few tips that will help avoid an unsavory situation with your client.
Research Your Client
Researching your client should go without saying, but many new freelancers fail to take this step. They see dollar signs or the beginning of a new career and cast inhibitions to the wind. Don’t let this happen to you.
When a client that wants to hire you, do your due diligence by completing a thorough background check. With employer review sites like Glassdoor only a click away, you can find the information you need to assess a client’s business worthiness. Don’t sign off without this step, or you could create a problem that’s easily avoidable.
Bonus Tip: Are you interested in a freelance gig on the Virtual Vocations job board? Visit our Telecommute Companies Database to research the employer. This is a free resource available to all jobseekers.
Sign an Airtight Contract
Before you sign up to work with a client, make sure you have an airtight contract. If the client has one for you, this is a telltale sign that it’s a client you want to work with, especially if their contract has set payment dates, the terms of the payment, and what happens if they’re late with payments.
If creating the contract will be your responsibility, hiring an attorney to draft a template is a solid approach. Insist that this contract includes the amount of work you’re expected to accomplish in a given period (e.g. quarterly, monthly, biweekly, or weekly), how long the client has to pay after they receive an invoice, and how you will receive the payment. You should also have a clause that details late payment fees or what happens in the event of non-payment. This will give you some clout and ground to stand on if you don’t get paid.
Because many freelancers aren’t experienced with invoicing, there’s certainly a learning curve. Hopefully, you won’t have to learn the hard way, so the best approach is to study invoicing and how to do it properly.
Most importantly, creating an invoice template that includes all of the information below will help avoid confusion, resulting in you getting paid on time:
- The name, address, and other contact information of the client
- An invoice number for easy tracking
- An invoice date
- A payment due date
- An itemized list of all work completed with the appropriate price
- A grand total of the amount owed
- Tax numbers, if required by law
- Payment terms, including how payments will be made
- Additional notes: this could be a thank you note, holiday greeting, or something pertaining to the months’ workload
There is some debate on how often to invoice your clients. Some experts state that weekly invoicing is in your best interest, as it keeps your cash flow steady. Critics point out it merely gives you more paperwork to do and monthly invoicing is best. If it’s not set out in the contract, you can try both to determine which works best for you.
Utilize Extra Funds in an Emergency
To help you stay afloat in case of missed freelance payments, ensure you have some savings set aside. In an ideal situation, these savings are your profits from last month after all your bills and business expenses are paid. If you dip into your savings it’s not the end of the world, but using extra funds is always a better route.
Get a Deposit
When you’re working with a new client, you’re not quite sure how reliable they are in terms of payment. Even reputable companies may fall behind on payments to freelancers if they are caught up in other issues or just the day-to-day operations of their business. Until you feel comfortable with a client, don’t hesitate to ask for a deposit.
Depending on the scope of the work and how you’re paid, this deposit amount can vary greatly. As a general rule, you should ask for one to two weeks of payment upfront. It’s not an overly demanding amount, and it sets the precedent for work in the future. Plus, you’ll have some money in the bank if the client should suddenly disappear or go belly-up.
At some point in your freelance career, it’s almost guaranteed that you’ll chase a payment or two. However, knowing how to handle the situation when it occurs and proactively avoiding these clients is the first step toward eliminating your role as a part-time collection agency. This will not only lower your stress but also give you time to develop your craft, be more productive, and build your freelancing career into a fruitful, rewarding, and profitable enterprise.
Do you have additional tips for handling missed freelance payments? Connect with Virtual Vocations on Facebook, Twitter, and LinkedIn to tell us about your experiences. We’d love to know what you have to say!
iStock Photo Credit: 1. D-Keine; 2. skynesher
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