Billing and collecting money from clients is one of the most unpleasant parts of running a business (or freelancing). You could have a great relationship with your client that goes sour as soon as billing issues arise. So what can you do to avoid these frustrations? After all, I bet you didn’t start a company or go off on your own because you loved invoicing clients and tracking down payments.
Two key ways I have found to avoid a hellish billing experience is to: 1) Set client expectations appropriately before engagement begins, and 2) Choose the right billing structure for your client’s needs and tendencies.
Setting Client Expectations
I have learned the hard way that the easiest way to piss off a client with respect to money is to forget to mention an expense or fee when reviewing the proposal. Below are some items I encourage you to discuss with your client before you begin work on a project:
- Sales Tax: If you are required to charge sales tax on your product or service offerings, be sure to mention that and include the amount on your proposal and in discussion with the client.
- Late Payments: You should consider having a standard late fee (mine is 5%) for any invoices not paid by their due date. Also consider how you will adjust your workflow if you do not receive payment on time? Will you pause work until payment is received? If that delay pushes back the project completion date will you charge the client additional fees to retain your services when you thought you would already have moved on to your next client? Have a mention of late fees on your invoices, and include information on late fees and workflow adjustments & consequences on whatever document you require your client to sign before engaging.
- Scope Creep: If the project has a set cost as opposed to weekly billing (see section on billing below), you will likely run into the client requesting things that were not included in the original project scope and therefore also not included in the original project cost. How will you charge for these additional requests (separate add-on project costs, billing an hourly rate…)? Mention this in your discussion and include in whatever written document the client is required to sign.
Choosing The Right Billing Structure
The two most common billing structures I have seen are set project costs and monthly retainers. I have found that monthly retainers do not work for me, and that weekly billing works better given my work and clients. Below I’ll discuss these three billing methods and the type of work and client I find best for each.
- Set Project Cost – Works best for clients that have a budget in mind and understand that a set project cost means playing the game of give and take. This can be very appropriate for projects that are relatively set in stone and have a clear end point. If you have a client that doesn’t like the word “no,” a set project cost could set you up for a lot of unpleasant discussions. Consider a weekly retainer for them (it will probably create the best experience for both of you).
- Monthly Retainer – Works well for clients that need ongoing help at a set, predictable cost and want to know you’re there for them when they need you. With my clients I have found that a monthly retainer is appropriate for maintenance or support work, but not so much for projects, as too much can change in a month to confidently set an retainer amount (cost and hours).
- Weekly Billing – This is my favorite way to bill (thanks Brennan Dunn for showing me the light). Weekly billing allows me to hyper focus on a client and their needs during that week and gives the client excellent attention and turnaround time. The client is sent an invoice, and work does not begin until that invoice is paid. If at the end of that week the work is not done, or if the client has more requests, another invoice is sent, paid, and the work continues. You can even set up automatic recurring invoices or automatic billing with different software (I use QuickBooks Online for this). I have found this method of billing works extremely well for clients that have a fluid project scope or needs that can change and grow, and for clients that change their mind often. All of my experiences with weekly billing have been fantastic and have kept me and my clients happy during the engagement.
Hopefully, by keeping transparency and clarity priority in your communication and considering ahead of time the best way to bill your clients, the hell that is billing might get a little less… hot.
This article also published on LinkedIn here.