8 Essential Money Terms Every Freelancer Needs To Know To Get Rich

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So you’ve decided to make the move to freelance work — good for you! Whether you’re going to be picking up some freelance work on the side, or you’re giving up your corporate job to strike out on your own, there are some money terms you should know to be successful as a freelancer.

Here are 8 terms you’ll want to know if you want to make a living – or get rich – as a freelancer.

Payment Terms

When you work as a freelancer, you don’t get a paycheck every week or every month. Instead, you will need to send an invoice to each client and then wait — and sometimes wait, and then wait some more — to get paid. Depending on the type of work you do, and the preferences of you and your client, you may get paid by the hour or by the project.

If you get paid by the hour, you will likely get paid after you have completed a certain number of hours, or a certain amount of time has elapsed. So, your agreement may be that you get paid for every 10 hours of work, or that you get paid each week for the number of hours you worked for that client that week (which may vary).

When you invoice a client, you should include the payment terms on the invoice. These can include:

1. Payable Upon Receipt

This means the client company should pay the invoice as soon as they get it. While it’s nice to get paid right away, this can mean different things to different companies. A sole proprietor or a very small business may pay this type of invoice in a day or two, while a larger company may have to send the invoice for multiple approvals before it can be paid.

2. Payment in Advance

This is nice if you can get it. In some circumstances, you may be able to get all or part of your fee paid before you start work. You can also request partial payment up front, with the rest due upon completion of the project.

3. Stage Payments

For lengthy projects, you can request stage payments. These are periodic payments that are usually tied to milestones in large projects. If you are designing a complex website, for example, you might get 25% of the project fee up front, 25% when the wireframe for the design has been completed, 25% when the copy has been approved and the final 25% when the site has been tested and launched.

4. Net 30

Asking for payment ‘Net 30’ means that the balance due should be paid 30 days after the date of the invoices. You can also request a different number of days, such as Net 15 or even Net 60. In some industries, particularly manufacturing and retail, this is common and may be expected, especially if you’re selling materials or products rather than a service. It can be challenging to manage your finances when you don’t get paid for a month or more, so take care when offering these kinds of terms.

5. 5% 10 Net 30

This is a payment option that offers an incentive for earlier payments. 5% 10 Net 30 means that the customer receives a 5% discount for paying within 10 days of the invoice date. If they don’t pay within 10 days, the full (net) amount is due in 30 days from the date of the invoice. For example, suppose you send an invoice for $1,000 on March 1. The terms are 5% 10 Net 30. The customer has two options: They can pay $900 by March 10, or they can pay $1,000 after March 11 but by March 30. Most businesses will take the discount if they can.

You can use any percentage and any net payment date that you want. For example, you could use 2% 10 net 20, which would give the customer a 2% discount for paying in 10 days instead of 20; or 10% 15 net 60, whereby they’d pay 10% less for paying in 15 days instead of 60.

Why Payment Terms Are Important

One of the trickiest things about freelancing is managing your cash flow. Since you’ll be getting paid for each project, or by each client, there may be times when you have a lot of money coming in, and other times when you have very little — or even none at all. The payment terms you choose can make a big difference in your cash flow.

How To Know Which Payment Term To Choose

The payment term you offer on your invoices can depend on several things. Some industries have standard payment terms, like Net 30. In other cases, it’s common for a freelancer to be paid in a certain way, often upon receipt. The type of project may dictate the terms, such as stage payments.

Regardless of what is common for your particular situation, you always want to ask for the payment terms that will be most favorable to you. The client may come back with different terms, and you may need to negotiate to get to something you can both live with. Regardless, make sure your payment terms are part of your contract so there are no surprises.

Payment Methods

Another factor that can impact how quickly you get paid is the payment method you choose. There are several ways to get paid, and you can specify which you prefer, although not every client will be able to pay by each different method.

6. Checks

Some companies like to pay by check, because they have a paper trail for their records, and also because it takes a few days for a check to be processed and for the money to actually come out of the company’s account. On the other hand, your payment may be delayed if the company mails the check, and if your bank holds the funds before making them available to you.

7. Digital Payments

Digital peer-to-peer payments like Venmo, PayPal and Zelle are fast, easy and secure ways for freelancers to get paid. If your clients agree to use one of these methods, you can usually get paid faster. And you may be able to invoice through these apps, which can improve your chances of collecting on your invoices on time.

8. Bank Transfers

Banks can send payment to other banks via Automated Clearing House (ACH), commonly known as direct deposit, or by wire transfer. ACH payments can be costly to set up, and wire transfers can be costly to send and receive. Both of these methods require you to disclose your bank account information to the payor, which may not be ideal.

Understanding payment terms doesn’t guarantee you’ll get rich, or even have a successful freelance career. It does mean, however, that you’ll be paid for your hard work in a manner that you expect and are comfortable with, which is an important step in your freelance journey.

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