A Field Guide To Freelancer Finances

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UNIVERSAL EDITION
Get paid faster

Learn to price
Relax about tax
PRACTICAL FINANCE TIPS FOR FREELANCERS BY
DESIGNERS, DEVELOPERS AND FREEAGENT
II
For a free trial visit freeagent.com
Table of contents
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Table of contents
Welcome
A word from the editor
About the authors
Setting off
Using the break-even point to price
Anna Debenham
How I take the uncertainty out of fixed-price projects
Daniel Howells
11
My biggest pricing mistake
Field report
16
My best pricing tip
Field report
18
Building shelter
20
Creating a stormproof invoicing process
Anna Debenham
21
My invoicing terms
Field report
28
Credit control for freelancers
Matt Perkins
30
How I chase late payments
Field report
34
1
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Keeping warm
36
Overcoming a fear of finances
Paul Boag
37
Accounting reports and what they tell you
Reference guide: Emily

Coltman, FCA
43
How to plan your cash flow for holidays and long breaks
Paddy Donnelly
46
About FreeAgent
50
About A Field Guide to Freelancer Finances
51
2
Welcome
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Welcome
Working as a freelancer means that along with doing the work you love, you also need to
explore unfamiliar territory, like balancing the books and dealing with tax. When I started
out as a freelancer, I found myself fighting with complicated spreadsheets and confusing
tax returns - it was easily the worst part of working for myself. I thought there had to be a
better way, so my co-founders Olly, Roan and I set out to build FreeAgent, software that
helps you manage your business finances and tax.
Here at FreeAgent, we want to help freelancers take control of their business finances.
Making great software is key to that, but we like to help in other ways too - thats why we
wrote this guide.
In this guide youll find practical tips and advice for managing your finances, reference
guides and real life stories from other freelancers about what theyve learned from their
own journeys.
Safe travels!
Ed Molyneux
CEO and co-founder, FreeAgent
3

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Welcome to the universal edition of A Field Guide to Freelancer Finances!
FreeAgent was started in the UK but we have happy customers all over the world, and
weve made this edition of the Field Guide for web designers and developers operating
outside of the UK.
Many of our examples are still from the UK, and wed love to continue updating this edition
with voices from all around the world - if you want to add your own field report to the
book or are interested in authoring a chapter, drop me an email at
fieldguide@freeagent.com. Id love to hear from you!
Happy reading!
Danae Shell
Editor, A Field Guide to Freelancer Finances
4
About the authors

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About the authors

Anna Debenham
Anna is a freelance front-end developer living and working in London.
She works with a range of clients to help build front-end prototypes, style
guides and websites. In 2013, Anna was awarded net magazines Young
Developer of the Year.
Daniel Howells
Daniel is a web designer and developer who specialises in both websites
and applications. Daniel is the founder of siteInspire, one of the largest
and most well-respected showcases of web design and a directory of
agencies and freelancers.
Emily Coltman, FCA

A graduate of the University of Cambridge, FreeAgents chief accountant
Emily has been working with small businesses since the year 2000 and is
passionate about helping their owners lose their fear of the numbers
and the taxman. She is the author of three ebooks, Refreshingly Simple
Finance for Small Business, Micro Multinationals, and Very Awkward
Tax.
Matt Perkins
Matt has worked with many small business owners and freelancers
at Business Link in London as an adviser and for PayPal UK, where he
planned and oversaw the implementation of their UK SME engagement
strategy.
Paddy Donnelly
Paddy is an Irish illustrator and designer currently living in Belgium. He
creates apps for kids with W
ee Tapsand has worked with clients such as
dConstruct, Foursquare and Mobile Vikings.
Paul Boag
Paul is a user experience consultant, author and speaker. He helps notfor-profits such as the European Commission, UCAS and Doctors Without
Borders adapt to the digital world. He refocuses them on user experience
and engaging with a new digitally-savvy audience.
5
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Setting off
Pricing your work might feel as daunting as
setting off into the wild - youve heard plenty of
stories about how others do it, but youre not
sure how its really going to work for you.
In this section, youll find some practical advice
to help you evaluate your approach to pricing.
6

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LOFTY PEAK
SUMMIT
4,416m
ABOVE SEA LEVEL
Using the break-even point

to price
Anna Debenham
We all love the freedom that being freelance gives us. But at the end of the
day we also all need to make money. Being the best designer or developer in
the world sadly wont help you if you cant make enough money to survive,
which is why the figure called the break-even point is so important for
freelancers.
Your break-even point is the point at which your business is making enough revenue to
cover all your costs (without net loss or gain) and anything you make on top of this is
lovely, lovely profit. Youll be able to send out quotes confident that youre ensuring your
own financial security and building up your business - the key to future success! To get the
ball rolling, you need to work out the costs associated with your business over a year.
Step 1: Add up all your costs

These might be fixed costs (a cost that stays the same regardless of how many sales your
business makes, or how active it is), for example:
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Rent/mortgage
Subscriptions
Web hosting for your own site
Insurance
or they might be variable costs (changes with how many sales your business makes, or
how active it is), for example:
Postage costs
Taxi fares
Web hosting for customer sites
Electricity
Also look at your personal outgoings how much do you need to take in each month to
pay all your bills? Dont forget to include anything that will change as a result of being
freelance such as childcare costs, travel and any extra equipment like your own computer
and software.
Step 2: Plan your capacity for billable days

How many days do you think youll be working every year? Your true capacity is probably
lower than you think. Out of 365 days in a typical year there are 261 working days (Monday
to Friday) - but of course youre not going to be spending 261 days working solidly.
Take into account public holidays and the number of days you want to take as holidays. As
a freelancer you can have a lot of flexibility around taking time off, but not working means
not earning money, so you need to consider all of this when figuring out your rate.
Also think about the days you need to set aside for maintaining and developing your
business. Invoicing, preparing accounts and tax all take time, as do finding and chasing
leads for new work, project management and correspondence. Tools like FreeAgent can
massively help with this, but dont forget that in larger businesses this is a role in itself, so
when you work for yourself you need to factor in (and schedule) enough time towards this.
You can also allocate time towards your own learning and personal development. This
includes conference attendance, and time spent reading and studying. If you dont invest
time in improving yourself then it will be much harder to stand out from - or even keep up
with - the competition.
So, lets say we subtract the following from your potential 261 working days per year:
Maintaining and developing business: 10% (26 days)
Learning and personal development: 5% (13 days)
Holidays and time off: 10% (26 days)
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Sickness and unforeseen circumstances: 5% (13 days)

= 183 available days to work per year
That means that, in this example, you are not able to charge for nearly half of the 365 days
available in the year.
Step 3: Calculate your break-even point

To calculate the break-even point on what you charge, divide the sum of your yearly
outgoings by your yearly billable days.
Example: How Jenny works out her break-even point daily rate
Jenny is a freelance web designer who wants to know the amount of money she
would need to charge per day to cover her costs.
Total of her outgoings per year (including household expenses): 25,000
Total of her projected billable days per year (taking into weekends/holidays/
possible sick days, etc): 183
So Jenny divides her outgoings by her billable days:
25,000/183 = 137 per day break-even point
Jenny now knows that shell need to be charging her clients at least 137 a day to
cover her costs.
Remember, your break-even point really is your bare minimum. Charging this amount
doesnt leave any room to build up a cash buffer or to expand as a business, and doesnt
take into account external factors like market conditions. Its crucial you bear this number
in mind when you quote for work as you want to ensure that youre being paid a healthy
amount over this so that your business is profitable and resilient.
Making a profit is key to a healthy business and knowing your break-even point will really
help you to eliminate guesswork when it comes to quoting for work make sure you know
what youre worth!
Anna Debenham is a freelance front-end developer living and working in London. She works with
a range of clients to help build front-end prototypes, style guides and websites. In 2013, she was
awarded net magazines Young Developer of the Year.
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How I take the uncertainty out

of fixed-price projects
Daniel Howells
Spend enough time with freelancers and youre likely to hear warnings
against charging one total cost for a job. Fixed-price project proposals
can be easier to sell and bring less risk to the client, but the freelancer
can fear ending up working for free for weeks (or months) because of all
sorts of variables and unknowns. Yet despite this, after almost a decade of
freelancing, the majority of projects I undertake are still quoted on a fixedprice basis.
Why do I do this? I quote a fixed price because Ive been obsessively tracking my project
time for as long as I can remember, and its taught me a lot about how I work, how long
things really take, and how to produce a bang-on estimate that ensures Im being paid
fairly for my time.
Seeing the value of time tracking

Early in my career I worked at a variety of client-services companies. Without fail, every
Friday at 5pm somebody would appear from nowhere and sheepishly remind us to
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complete our timesheets. The request was always greeted with protestations, since trying
to remember what wed done that week and wrangling their archaic time-tracking app
into submission was never a more exciting prospect than being in the pub for Friday night
drinks.
The issue was that these numbers never had any meaning to me. For the most part
they were plucked out of thin air, and never taught me anything about how I worked or
how I could improve. But the moment I transitioned into my freelance life, there was a
difference: the numbers were relevant. The 30 minutes doing one thing for one client and
two hours doing something else for a different client suddenly made sense, and revealed
that I was either managing one project very well, or another one very poorly.
How I track my time

When I started freelancing, I broke my time down into a detailed list of tasks:
Proposals and initial meetings
Creative research
Functional requirements and documentation
Wireframing
Design
Front-end development
Back-end development
Amendments and maintenance
A detailed list, I know, and probably verging on the obsessive. However, this level of detail
was enough to give me visibility as to what I was actually doing on a project.
To measure my time, I simply used the stopwatch on my phone and logged it in an
invoicing app after I finished each task. When I completed a project, I could see exactly
how and where my time was spent, and this showed if I went either under or over my
fixed-price proposal.
My working day is typically seven hours, give or take half an hour. On an ideal day, the sum
of time Ive dedicated to project work should land somewhere around that mark. If by the
end of the day Ive logged only a measly three hours, clearly Ive wasted far too much time
on Twitter or Reddit. The next day Id hope to make up this discrepancy, but thankfully
the cold hard numbers encourage me to be disciplined enough to only slip a few times
a month. If I went over the hours Id proposed, well, that meant my next proposal for a
similar project needed to be adjusted accordingly.
What Ive learned

With all this gathered data to hand, what did I learn?
My design time varies much more than development time. Working in both design
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and development, tracking my time made me realise that there can be huge variances
between different types of tasks even though two projects might be similar. Because
design is so subjective, I found that I would spend a lot more time to-ing and fro-ing with
the client on design changes, whereas development is more objective and usually doesnt
normally overrun.
I could use my historical time information to more accurately build contingency time into
my proposals. Fixed-price project work is usually criticised because the only way you can
be certain of not losing money is by padding the proposed cost out with extra hours, days,
or weeks just to make sure. That is indeed often the case but adding in a contingency of
time isnt deceitful, its just good planning; remember that a benefit of the fixed-priced
project is that the client only has to deal with one number, and if it works within their
budget, its composition is moot.
Having archived project records right there to refer to makes it considerably easier to
quote and plan for contingencies. My projects are typically consistent in nature; normally
the design and development of a website. There are variables, of course, but for every new
project Im always going to have a past project thats similar in nature. Using that as a base,
Im able to cost up my proposals far more accurately than pulling figures from thin air.
Im getting faster over time. My timing data also revealed some interesting trends. Im
neither a formally trained designer or developer, but I have noticed that over the years
the time I take to design a site, or develop responsive templates, has decreased, either
because our tools are getting better or because (Id hope) Im learning and becoming more
proficient. Thats perhaps predictable, but seeing the information in front of you is very
motivating and rewarding.
Refining the time tracking process

Translating the results of your time tracking into accurate fixed-price quotes might seem
daunting at first but take it from me it does get easier. After nearly a decade of evaluating
my time and refining my quotes, Im able to estimate my fixed-price projects with almost
dead-on accuracy, and youll easily become more proficient the more you do it. In fact, Ive
only recently had two projects go over estimate, both were for reasons outside my own
control and theyve taught me to look out for the same potential situations in the future.
This year, Ive simplified my time tracking to just three categories:
Design
Development: both front-end and back-end, combined into one category
Project management: including everything from proposals and meetings, to general
organisation
I still give my clients a detailed breakdown of the project at the estimate stage, but after
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years of tracking my time, Ive been able to refine the level of detail that I need for my own
records.
My tips for fixed-price pricing

If youre considering quoting for a fixed-price project, here are some tips that can help.
Give a detailed estimate: Ive found that the more detail you can give at the estimate stage
for a fixed-price project, the better - it helps set expectations early on about exactly what
the client is paying for. Make sure youve captured in writing everything youve discussed
about the project, every template that needs to be designed, every functional feature that
needs to be included. You can be certain that new additions to this list will appear during
the process, so you need a single source of truth about what you agreed to do for a given
cost. Everything else should be scoped and costed in addition, and the client should
understand that.
Show discounts on your invoice: Occasionally I offer a discount for projects that look
particularly interesting or challenging. If I discount a project, I always issue an invoice
for the full amount that I would normally charge, then apply the discount agreed on the
invoice. It serves as a reminder to the client that Im doing them a favour and it certainly
helps rein in any scope-creep.
Be honest when tracking time: When youre freelancing theres nobody breathing down
your neck anymore, and you neednt fudge the numbers just to make sure the timesheet is
submitted on time. Its for your benefit that youre tracking the time, so find a method that
lets you accurately track tasks and stick with it for as long as you can to get an honest view
of where you spend your time.
Track your personal projects: Like a lot of people, I have a few side-projects that I do
for my own personal needs. I track time on these too, since I often get new business off
the back of them. Knowing how long it took to create a website that had no proposal or
commissioning client means I can create a similar proposal in the future more accurately.
Daniel Howells is a web designer and developer who specialises in both websites and applications.
Daniel is the founder of siteInspire, one of the largest and most well-respected showcases of web
design and a directory of agencies and freelancers.
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Want to become a
master of time?
Take the guesswork out of billing like Daniel
with FreeAgents online accounting software for
freelancers.
FreeAgent makes it easy to track all the time spent
on projects, so youll have an accurate record of just
how much work was involved and will know what
you should charge.
Try FreeAgent for free
Never lose a minute again
Enter timeslips or use the built-in stopwatch to accurately record every last
minute of your time as you work, so youll always be on the ball.
Turn time into money
When a project is finished, you can simply import your unbilled

timeslips into an invoice and send it to the client in a jiffy.
Flexible timesheet reporting
Its easy to generate reports so you can see how your time is being
spent across different projects - you can even email them to your
clients to give them visibility of progress.
Always up to date
Seamlessly switch between mobile, tablet and desktop - if youre out

and about just record your time on your mobile device, and switch to
your desktop to finish the job. Everything stays in sync.
Thank you for making my time tracking, invoicing and accounting so easy, from one happy customer :)!
Jason Coombes, @databasejase

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Field report: UK freelance designers and developers
Getting your prices right as a freelancer is often a case of trial and error and its easy to
make a few mistakes as you find your bearings. To help you avoid some of the most
common pitfalls, heres a few words of warning from experienced freelancer designers and
developers as they reflect on the pricing mistakes theyve made in the past.
When you start out, one of the hardest

things to do is price your products but
dont price yourself too cheap! Not only
will you be working for next to nothing
but it can also make potential clients
think the product is cheap and not
good quality.
Julie London, Designer

I once agreed to do a project at a token
fee for an allegedly cash-strapped
charitable cause I really cared about.
The joke was on me. Every conceivable
exploitation of my time and labour
followed. I later worked out that I
had done the job for a fraction of the
minimum wage. Lesson learned: no
matter how allegedly cash-strapped
your cause is, make them pay you what
youre worth.
Heather Burns,
Digital law specialist and web designer
My biggest pricing mistakes were fixed pricing

and failing to review and communicate. Ive
always felt that developers tend to use fixed
pricing where we estimate up front, give a price
and stick to it. Whereas most designers I knew
would give a price per hour, so if the project went
out of scope, they would get paid.
With fixed pricing, I should have always been
reviewing to ensure the project is on track and
on budget, but its too easy (for me) to let this slip
and then end up paying myself. In the past, Ive
been paid the original fixed fee for a project that
doubled in time.
Remy Sharp, Developer and founder of Left Logic
I write cross-platform apps and made a mistake

with one of my first projects where I wasnt clear
on the amount of work required for each platform.
Typically Id expect to achieve 90% code share
between iOS and Android but in this case it
was a fixed price for both the client ended up
abandoning Android and as a result felt they owed
me half. Because I wasnt clear I lost a good amount
of money now Im VERY clear.
Jason Kneen, App developer
There is no worse feeling than having

to continue on a project when you are
making a loss. Hourly pricing is vital in
my cost management.
My biggest pricing mistake is allowing myself to

be haggled down in price. You start the project
with a sense of resentment which is no way to
begin.
Aaron Wheeler, Developer
Steve Folland, Video creator
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In my first few jobs I was charging

next to nothing as I just wanted the
business. I agreed a fee for the full job
with a client, but it worked out to be
less than half of the minimum wage.
Ive made a fair few mistakes in the past,

biggest one has to be giving a fixed cost for a
WordPress build which took ten times longer
to build than estimated. As it was on a fixedcost project, my hands were tied. Im not one
for giving up and bailing on a project mid-way
through so I saw it to the end and chalked it up
to experience. Moral of the story? Avoid fixed
costs.
Andrew McSparran,
Graphic and website designer
I made a mistake in giving a quote

without a full understanding of my clients
background, budget and expectations.
In my case the quote was too low and
my client was quite disappointed as he
thought I wouldnt work hard enough on his
project. I missed a really good opportunity.
Barbara Marcantonio, UX/UI designer
Losing hours after a project is done is a

mistake. Everyone wants to be nice to existing
clients in the hope of repeat business, but six
months later when a subordinate asks for a
small change or update, it might only take
you ten minutes, but you get sucked into a
few hours of back and forth than you can
never bill for.
Brian Suda, Developer
Earlier in my career not having the

confidence to ask for the value I
provide. Not many people like talking
about money, but a good designer
makes their client more profitable.
What you ask of your client is a fraction
of what you make them.
Its even more important to get pricing
right when youre a freelancer so you
can pay yourself for administration,
and when things are more quiet.
Zach Inglis, Developer and designer
Anthony Killeen, Front-end developer
My biggest pricing mistake has been to

underestimate the effort needed to add a new
WordPress plugin to an existing WordPress
website that already had many custom plugins
and commercial plugins. The custom plugins
had not been developed very well and they
conflicted with my new plugin. I had committed
to making the delivery so I had to debug the
custom plugins as well as trying to make my
own plugin more robust.
Clive Verrall, Developer
I once had a client ask me prices on the

phone and I panicked and made up both
a day rate and an hourly rate. After I got off
the phone I realised my day rate equalled
only three hours based on my hourly rate.
Unsurprisingly, Im still waiting for them to call
back.
Michael William Lester, Designer and illustrator
Wed love to hear freelancer experiences from

all over the world. Email us at fieldguide@
freeagent.com and let us know your biggest
pricing mistake for a chance to appear in the
ebook.
Danae Shell,
17
My best pricing tip

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My best pricing tip

Now you know the common mistakes to avoid, but you still need to find the pricing sweet
spot where both you and the client are happy. Heres a range of opinions from freelancers
who have been there and done it all before.
Dont charge for your time; charge

for your impact. As a consultant, eight
hours of my time can save a company
tens of thousands of pounds. I dont
want to charge them for my eight
hours - I want to charge them for my
knowledge.
Harry Roberts,
Consultant front-end architect
Look into the client and gauge their

company size and budget. If its a limited
company, you can find its age and key
financial statistics such as turnover and any
debt for free online.
Martin Bean,
Developer and consultant
When considering how I might charge clients

for my services, I decided to use a day rate,
rather than an hourly one. This is consistent
with what others in my field were charging,
and besides, the type of projects I work on
typically span a number of weeks. The day is
a clearer and easier unit of time to work with
in that context.
Paul Lloyd,
Graphic designer and web developer
Make sure that you break your prices down

rather than just quoting a large round number.
Scope out projects thoroughly and put a
cost, and timescale, down for each stage.
Initiation, Planning, Design, Development,
Implementation...whatever it entails. Clients are
much more likely to go for the option where they
are clear on what theyre getting for their money,
rather than a vague number. If there will be a lot
of project management involved dont be scared
to include that in too.
Jen Thomson,
Designer and front-end developer
Try packaging your services. Packages
contain a clearly defined group of tasks
to be completed each month. The client
pays you upfront so there is no chasing
invoices and since they are paying for a
skill not your time, you no longer have to
track your hours.
You can also create an la carte list of
your services for those months the client
may need more of something than your
package(s) provides. Package, package,
package!
Michael Merritt,
Virtual technology support
If you love your client, charge what seems

fair. If you know its going to be a nightmare,
charge what makes it worth it to you.
Camilla Grey, Strategist
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Transparent pricing - always break down

the cost of each of the products or services
your customer has bought from you. For
website design invoicing we break down the
services into graphic design, content writing,
website domain name, website hosting etc.
That way clients can see exactly what they
are paying and feel like they are getting a
good deal.
Julie London, Designer
My best pricing tip is to always follow

your gut. Its easy to estimate a project
based on hours you think youd spend
but your gut knows better. If it feels like
a three week job but youre only costing
for two, then more often than not, youre
setting yourself up for a mountain of
stress. A rule of thumb that some use
is to price a project, double it and then
add 10%.
Anthony Killeen,
Front-end developer
Have a get out of bed figure in your

head and dont be afraid to use it. I get
lots of enquiries and lots without proper
brief/specs over time you get a gut
feel for how big a project could be so
the best thing you can do to eliminate
time-wasters is go back with This will
be a minimum of X it will have the
immediate effect of either identifying
their budget (which you could then work
to) or eliminate them as time wasters.
Jason Kneen, App Developer
Pricing must be bespoke to the customer,

services (or goods) being provided and
situation. Factor in a premium for likely
difficulties dealing with clients, or waiting
for sign off or approval. Offer a discount
in return for prompt payment, or better
working conditions. Your best and worst
clients should not be paying the same rates.
Steve Kirtley, Developer
I have a spreadsheet for each project in which
I keep a track of the hours worked per day and
the features delivered. When I need to estimate
the price for a new job I add up the days
spent on similar projects rather than trying to
calculate the cost of each development detail.
For similar projects, I find this approach quicker
and more accurate than getting too much into
the details.
Use some kind of freelance pricing software/

professional invoicing software. There are
many to choose from online. DONT undercut
yourself. If you are producing great work,
charge fairly for it. You went freelance for a
reason, dont sell yourself short. Remember,
the client you work for now may recommend
you to a new client and also state your prices,
if its a similar job you will feel obliged to
honour your previous pricing structure.
Ronnie Pye,
Developer and designer
Wed love to hear freelancer experiences from

all over the world. Email us at fieldguide@
freeagent.com and let us know your best pricing
tip for a chance to appear in the ebook.
Danae Shell,
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Building shelter
Once youve got a healthy amount of cash
coming in, youve got a roof over your head and
can start to relax. Unfortunately, building up that
cash flow isnt always easy - some clients seem to
always pay late, and some just dont pay at all.
In this section youll hear from other freelancers
about their own techniques for getting paid, and
youll also find practical tips for handling
worst-case scenarios.
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Creating a stormproof invoicing

process
Anna Debenham
I really hate asking for money. Maybe its because Im British, or that I find
it weird that people are paying me money for doing something I enjoy, but
sending and chasing up invoices is one of my least favourite things about
running a business.
Over the years, Ive refined an invoicing process that helps protect me from
non-payment and also reduces the awkward step between doing the work and getting
paid. Heres how it works.
Before you start working

To weather a storm, you need to make sure that your shelter is solid, and this means doing
some preparation to make sure an unexpected gust of wind doesnt blow everything down
and leave you shivering.
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Credit checks
Its important to make sure that the organisations you rely on to pay your bills are well
going to be able to pay your bills. A quick way of assessing this is to check their credit
score. In the same way that you can check your own credit score, you can also check
another companys and there are a few different online services that do this. Matt Perkins
Credit control for freelancers gives lots more information on credits checks and setting
credit limits in advance.
Payment terms in your contract

To make sure that you and your client are on the same page before work starts, you should
include a section in your contract (you do use one, right?) about payment terms. There are
a few important things you probably want to specify, such as:
Whether youre asking the client for any retainer or deposit before you start working
If your project isnt fixed cost, whether youre going to bill them for days booked that
they dont end up using
How much youre billing them over what period of time
Whether the amount youre billing is inclusive of VAT or sales tax
What currency youre billing them in (particularly important for overseas clients)
What format of payment you accept (see note about payment methods)
At what point you will send them an invoice
What you agree to deliver before and after the final invoice is paid (some freelancers
will only make the site live once final payment has been made)
How many days before that invoice goes overdue
What you will do if that invoice goes overdue
Its important that your client understands and properly acknowledges these terms
because money is so often the thing that causes disputes.
Note about payment methods:
A while ago, I had a couple of clients who insisted on paying with cheques. This is less
common now, but it was a real pain to queue at the bank and pay them in, and there was
also a higher fee on my account for paying in a cheque as opposed to a bank transfer. My
payment terms now insist on paying by bank transfer. If I ever get a client who wants to pay
me a cheque again, I can put in the payment terms that Ill have to charge them a small fee
to cover my costs of paying it in.
Payment terms and when to invoice

By default, I want clients to pay me within seven days of receiving my invoice, but its quite
rare I can implement that; after some negotiation, my payment terms often end up being
14 days, which is still better than the usual 30. Some larger companies have accounting
departments that insist on 30 days and they wont budge on this, so you might need to
make a concession.
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This does make cash flow more of an issue, so if youre in this situation, you could ask to
invoice at the end of every week rather than every month so you have a more consistent
flow of income. Invoicing (and thus getting paid) regularly will balance out those nervewracking feast and famine spikes in your income.
Writing the invoice

First, its good to double check that your invoice has the following important information:
The word invoice clearly displayed
Your company or trading name, with your address and contact details
The name and address of the company that youre invoicing
A unique invoice reference
A summary of the work youve done
The date(s) that you provided the work
The amounts youre charging for each piece of work
The VAT or sales tax amount youre charging (if applicable)
The total amount due
Here are some other tips:
Payment details: Dont forget to put your payment details on your invoice so your client
can pay you straight away - this includes the name of your bank, your account number
and sort code if youre accepting bank transfer payments, or your PayPal details if youre
using that.
Payment terms: Its also important to add the due date so your client can see when the
payment needs to be made by.
Summary of work: Your summary should be really clear so the client knows exactly what
theyre paying for. In FreeAgent, I hook my invoices up to my timesheets so I can show
details of what I did each day I was working on the project.
Project references: Some clients ask you to include a PO (purchase order) number or the
project owners name so that their accounting department can see what it applies to.
International payments: Since working for clients in other countries, Ive also added
my BIC (also known as SWIFT or SWIFTBIC) and IBAN. These are needed for me to make
international payments. Even if you dont currently have international clients, its good to
ask your bank for these details now so you have them to hand if you need them.
Invoice references: Invoice references need to be sequential, but if youre just starting out,
it may look unprofessional for your first invoice to be numbered 001. One option is to start
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with a random number to make it look like youve been on the block for longer, or you can
give each client their own reference (Widgets Incorporated would be WI001, WI002, and
Acme Corp would be AC001, AC002).
Sending the invoice

I used to hand craft an email to my client every time I sent an invoice, but that would often
put me off sending the invoice in the first place because I couldnt think of anything to say
other than a long, awkward version of Uh, hi! Heres my invoice. Please pay it!. So having
a boring but to-the-point template email that accompanies my invoice makes the process
a lot easier.
That said, I do customise these messages a little depending on whether Im sending them
directly to the client, or to their billing department (I assume that the billing department
doesnt really care that I had a wonderful time working on the project and that I hope to
work with them again soon).
If Im sending an invoice to a billing department at the end of every week, I add the project
name and reference in the subject so its easy to see what it refers to, and just add a short
note explaining what period the work Im billing is for. This hopefully makes their jobs
easier as they dont have to chase up the project owner for more details.
Subject: [project_name], invoice [reference]
Hi,
Ive attached my invoice for the work Ive done on [project_name] in the week
ending [invoice_date].
Kind regards,
Anna
Its as simple as that. If Im sending my invoice directly to the client Ive been working with,
I tend to be more informal. And if its a one-off piece of consultancy and I enjoyed working
with them, I ask up front for more work.
Subject: invoice [reference]
Hi [contact_first_name],
Ive attached an invoice for the [project_name] work I did with you. It was a really
fun project and I hope youll ask me back in a couple of months to review what
youve been working on.
Kind regards,
Anna
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Chasing overdue invoices

If an invoice goes overdue, I send a short email a couple of days later to prompt the client
(avoid sending it last thing on a Friday, it will inevitably get lost). I like to say this is an
automated reminder even if I send it manually, so it looks less like Im personally chasing
them up, rather that my system is.
Subject: Invoice reminder: [reference]
This is an automated reminder to let you know that invoice [reference], sent
[invoice_date], is now overdue. If youve already paid this invoice, please let me
know as there may have been a problem with the transfer.
If its still overdue a couple of days after that, I send another email:
Subject: Invoice [reference] overdue
Hi [contact_first_name],
Ive just been going through my accounts and I noticed that invoice [reference] is
showing up as overdue. Could you have a look into this? If the invoice is still unpaid
in 3 days, my system will start charging the base rate of interest on top of the total
amount due.
Let me know if its already been paid so I can chase it up with my bank.
Kind regards,
Anna
Again, Im referencing my system. I dont want to be too personal, not yet. Usually its just
someone being a bit forgetful, or theres some paperwork that needs signing off first, and a
gentle prod is all thats needed.
Chase early, chase often

I send my chasing emails once the invoice is only a couple of days overdue. Ive found that
Ive had the biggest problems with payment when Ive only started chasing up an invoice
several weeks after its gone overdue, so I recommend you chase up early and often.
When they dont pay

Ive been very lucky with getting paid on time and Ive only had a couple of times where an
invoice has gone significantly overdue, with one that Ive had to write off. In one case, I was
on a long-term contract and I told the client I would suspend working for them until all my
payments were up to date, which was enough to get all the outstanding payments made.
If things really turn sour, you can hire a mediator who will attempt to settle a dispute out of
court, or you may opt to take your client straight to a small claims court sometimes just
the threat of doing this is enough to settle a bill. Fortunately Ive never had to do this with
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a client, but its an option if multiple reminders are being ignored and youre not keen to
maintain a positive relationship with them.
Another alternative is to sell the debt. This means that a debt collection agency will
attempt to collect the money from the client themselves, such as by sending in bailiffs.
This is a handy option to know about if youre desperate for the money.
If the overdue bill is small enough, or you know theres very little chance youll be able to
recover the money (such as if the client goes bankrupt), you may decide to cut your losses
and write off the debt. This means you accept that the payment is never going to be made,
and it gets recorded in your business accounts as an expense.
The ideal situation is to not have an invoice go overdue for any work youve already done.
Some freelancers insist on being paid upfront for all the work they do. They will invoice the
client every week for the following weeks work, and if an invoice goes unpaid, they dont
do the work. The client is effectively paying to book in that persons time.
Its not always possible to negotiate this for the entirety of a project, but its not unusual
to ask for a deposit before starting a new project, especially if youre paying expenses like
travel or accommodation upfront. After all, its one thing if a client doesnt pay on time for
your services, its another if its for expenses.
Be proactive and get into a routine

I think that the most important part of invoicing is to set up a process that helps you get
ahead of any problems that you may weather down the line. In particular, a good weekly
invoicing routine to prevent potential cash flow problems and a few pre-written emails
that you can confidently use to chase payment can make a big difference to helping you
get paid.
Anna Debenham is a freelance front-end developer living and working in London. She works with
a range of clients to help build front-end prototypes, style guides and websites. In 2013, she was
awarded net magazines Young Developer of the Year.
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Ready to stormproof
your invoices?
Put Annas advice into action with FreeAgents
invoice software for freelancers.
In FreeAgent you can design your own invoice or
choose from our templates, then set up automated
reminders to nudge any late-paying clients.
Customisable invoice templates
With our gallery of great-looking invoice templates, you can find

a style that matches your brand. You can customise invoices or
even design your own with CSS.
Automatic invoicing
Billing a client for your time is easy - just import your timeslips into an invoice, or
even set up recurring invoices that import any unbilled time and send themselves
automatically. Once the invoice is sent, you can create your own automated reminder
schedule to make sure you get paid.
Know who owes you what
Your invoice timeline instantly shows the status

of recent invoices and lets you see whats been
paid, whats due and whats overdue.
Get paid faster
Want to get paid online? No problem. Your clients can view invoices
online and pay by credit/debit card, Direct Debit or PayPal.
FreeAgents automated invoice reminders have made invoicing totally hassle-free for me
Anna Debenham, @anna_debenham

27
My invoicing terms
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My invoicing terms
How do other freelancers invoice their customers and time their payments? Heres a
selection of invoicing terms used by other freelancers.
I invoice private clients every week

and expect to receive payment within a
week. I work for many clients at a time
and so if one client is slow to pay then
I favour the work for my other clients
while waiting for the payment.
Depending on the scale and stages

of the project usually 25% initiation,
25% on design sign off, 25% on either
prototype or beta stage build then
the final 25% on completion. I ask for
payment after 14 days, sometimes I get
that, sometimes its a month. Depends
on the client.
Jen Thomson,
My invoicing term is payment upon

milestones. I set out where the project
will be after specified dates and then
demand a percentage of payment
before moving on.
Aaron Wheeler, Developer
Regarding invoicing terms, I have different setups

for different clients but its usually 10% deposit,
50% of the balance at midpoint and final balance
on completion. Payment terms are strictly seven
days from invoice and generally, I dont have
many issues along the way.
If a project is a more long-term thing, then I
stagger payment requests. Theres nothing worse
than entering into a six-month build and invoicing
10% at the start and then nothing for three
months.
Anthony Killeen, Front-end developer
For fixed-price projects, Ill request a deposit. The

amount depends on the length of the project. For
example, it would be hard to convince a client to
pay 50% upfront for a project estimated to take
six months. For consulting and contracting where
Im billing a pre-agreed day or week rate then Ill
invoice weekly. All invoices are due upon receipt.
Martin Bean, Developer and consultant
I usually ask for a 35% non-refundable deposit

and I dont start working until that money is in my
account. I then get a mid-project payment and a
final payment right before the release. Make sure
the last payment happens before you give your
clients all the source files or set their website live!
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My invoicing terms
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Generally my payment terms are 50%

before project commences and 50%
upon completion but before go live.
Larger projects would have payment
milestones whereby I complete a set
project task by a certain date, the client
then pays that scheduled amount
before the next step commences.
Tony Pollard, Developer
My invoicing terms depend on the

relationship with the client. Some I take
50% payment before I begin, some
I only invoice on completion. This is
the good thing about freelance job
sites (like PeoplePerHour/Upwork etc)
where you can request 100% deposit
to be held in Escrow and youre then
paid within seven days of completion.
Heaven.
Steve Folland, Video creator
Wed love to hear freelancer

experiences from all over the world.
Email us at fieldguide@freeagent.com
and let us know your invoicing terms
for a chance to appear in the ebook.
When I draw an invoice up - depending on the

work I usually get a 5-10% deposit, do the work
and keep the client up-to-date throughout the
project with where their money is going. I never
send over any high resolution images, PDFs or
documents without being watermarked just in
case.
Keep timesheets. You never know, the client
may ask, and it keeps you right. I have my terms
and conditions on the back these are really
important! They keep you protected. Research
these and ask for help from other professionals.
Andrew McSparran,
Graphic and website designer
I seldom take a deposit because my work is such

short engagements (a day or two at a time) that
I dont have the kind of cash flow issues that a
deposit helps with (i.e. a long period of working
without payment). My terms are 28 days, and I
always invoice the client after the work has been
carried out in order to ensure theyre paying for
something theyre happy with.
Harry Roberts,
Front-end architect and consultant
Danae Shell,
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3 1. 8 2
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RING BELL FOR SERVICE

Matt Perkins
In my career as a business adviser, Ive worked with hundreds of freelancers

to help them manage their businesses, understand their finances and grow
their revenue. One of the recurring issues Ive encountered over the years
is that freelancers often dont have a credit control process set up, or are
reluctant to enforce a robust credit control process in their business.
Credit control seems to be one of the most dreaded and misunderstood responsibilities
of a business owner. Most people focus on the money collection aspect of it, but it is so
much more extensive than that.
In reality, credit control is:
increasing sales revenue by extending credit to customers who are deemed a good
credit risk, and
minimising risk of loss from bad debts by restricting or denying credit to customers
who are deemed a bad credit risk.
As a freelancer, your time is your credit. Every time you complete work for a client without
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being paid upfront, you are extending credit to that client. Getting into this mindset will
help you think about how much credit you want to extend to each client - after all, you can
only charge for your time once. Implementing a good credit control process will help you
minimise the risk of damaging your business by extending credit to the wrong customers,
and help you take advantage of extending credit to good customers.
Heres an overview of how to implement a credit control process in your business.
Check your clients credit

We all have friends that we dont lend money to because you know youre unlikely to see
it for a while (or never), right? Clients are no different. Even if you have a good contract in
place, it is futile agreeing terms and payment schedules if your client is not creditworthy.
If possible, try to do some basic credit checks on your potential clients, using services that
provide basic information for free. If you are entering into a large contract it may be worth
paying for more in-depth reports to make sure you are not overexposing yourself to an
unreliable payer.
You shouldnt just check new customers either - things can change quickly in business, so
you should regularly (at least once a quarter) check your existing customers to spot early
signs of difficulties. Hopefully, that will help ensure that you dont get unwittingly dragged
down by a struggling client.
Set credit limits and stick to them

Once you have a good understanding of a clients creditworthiness, you can decide how
much credit youre comfortable extending to them. For a freelancer, that means deciding
how much time youre willing to work for the client without payment. For some clients you
may agree to invoice fortnightly or even monthly for your work, and for others you may
require payment in advance for any work completed.
Just because a client has a less than impressive credit rating doesnt mean you cant deal
with them at all. As well as requiring payment upfront or at smaller intervals, you might
also want to consider investigating credit insurance (at the clients expense) although this
can be a costly way to do it.
Once you set a credit limit, the hard part is sticking to it. Its very tempting to extend limits
because work is flowing your way or your customer appears to be paying you perfectly
well. I appreciate that its very difficult to say I cant carry on working until you pay last
weeks invoice, but sticking to this limit will help you minimise a very real risk to your
business.
Of course you have to take some calculated risks in any business and will need to make
judgement calls about carrying on work, but too many times Ive seen freelancers get
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stung by not sticking to their agreed credit limits. For example, sometimes freelancers find
themselves getting more and more of a clients business, unaware that its because no one
else will deal with them - before they know it their exposure is dangerously high. This often
happens with new freelancers who only have a handful of customers and are reluctant to
turn down work and affect their turnover. Its important to remember that a sale is not a
sale until you have been paid!
Invoice regularly
Most of the freelancers that Ive worked with dont have a regular invoicing schedule
- instead, they end up fitting it in between work gaps or late at night from their sofa,
sometimes weeks after the work has been completed. There could, however, be a real
cost behind not invoicing regularly and promptly. Any delay on your own part in invoicing
could also be echoed by the client. Delaying sending your invoice means adding even
more waiting time to getting paid, which could have a big impact on your cash flow.
You can mitigate this risk by reducing the payment terms on your invoice to a shorter
time, but as many freelancers know, some bigger customers will have their own terms for
payment that you have to live by. To minimise the gap between your desired payment
date and your clients preferred one you should invoice regularly and as soon after
completion of work as possible. For everything you need to know about sending invoices
that command attention, see Anna Debenhams Creating a stormproof invoicing process.
Chase unpaid invoices with confidence

Once youve sent your invoice, no matter how much you hate it, you must remind clients
when money is due and then chase when its overdue. In my experience, this is one of
the hardest parts of running a business for many freelancers, with many designers and
developers avoiding chasing an unpaid invoice because they were worried that it might
damage their relationship with the client.
Its easy to feel awkward about chasing invoices, but its an unavoidable part of
freelancing. Keep in mind that many of your clients will be in the same situation as you in
terms of managing cash flow, and some will operate on the basis of paying the one who
shouts the loudest first, holding off payment until pushed. Its useful to accept that this is
just the way things work in business and to ignore the feeling of taking it personally - and
make sure your voice is amongst the first heard!
Another useful way to avoid awkwardness is to remind the client a few days before
the invoice is due, in the same way your doctor may remind you about an upcoming
appointment. If you remind them that you are expecting to be paid next Monday, it can be
easier to ask on Tuesday morning where the money is.
If this all sounds like a lot of reminding, dont forget that you can automate this whole
process - accounting software like FreeAgent can schedule automated reminders on
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invoices, working away in the background to help you collect your money.
The most valuable thing a freelancer can learn is that their time is their credit, and that
they dont have to extend the same credit or terms to everyone who wants to work with
them. By reviewing a clients creditworthiness upfront, you can help to minimise the risk
to your freelance business, and hopefully build great relationships with your most reliable
clients.
Matt has over 20 years experience in sales and marketing in the retail and manufacturing sectors.
He has also worked with many small business owners and freelancers at Business Link in London as
an adviser and for PayPal UK, where he planned and oversaw the implementation of their UK SME
engagement strategy.
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Even with a reliable invoicing process you will still get the occasional client who pays late,
or worse refuses to pay. Dont worry, youre not alone. Here are a few first-hand examples
of how others attempt to resolve these situations.
I have been lucky not to have had
too many instances of late or
non-payment. I would always send a
friendly email first. Something like:
Hello Client X, Im just sorting my finances
out for the month and noticed that the invoice I sent on 4th May hasnt been settled.
Can you let me know when youll be making that payment? and most of the time it
will have been that they have forgotten.
Jen Thomson,
When a client is late on payment, I send

a gentle reminder that the payment is
due and asking if theres anything I need
to know about. Once they reply saying
itll be paid by a specific date, I then start
emailing every other day from that date
asking where payment is. Im a small
enough fish that the few clients that do
need chasing would rather just pay and
get rid of my annoying emails.
Remy Sharp,
Developer and founder of Left Logic
If a client is late in paying then Ill email them

every couple of days or so politely asking when
they are planning to pay their outstanding
invoice(s). If I feel things are dragging then Ill call,
ideally on a direct line to avoid the Theyre not in
the office fob-off!
Martin Bean, Developer and consultant
The best tip I can give for payment is to put a

late-pay interest clause in your contract. The
object is not to use it but to give an incentive
for your clients to pay in a timely manner. Most
clients have the best intentions, but its not
necessarily in their interest to pay you as soon
as they can. Adding that clause makes it so its
in both your interests for prompt payment.
Zach Inglis, Developer and designer
I start EVERY project with a full written contract. I
cant stress this enough. Get EVERYTHING in writing
at the start of the project. For late payment/nonpayment I have a three-letter format. All friendly,
with increased incentives for them to pay me. The
reasons people usually dont pay is that they
havent got the money or they feel the work doesnt
equate to the cost. So, if you have a late payer
or a non-payer, stay friendly. Ask them what they
are prepared to pay for the completed project.
Its better to walk away from a project with some
money for your work rather than nothing at all. I
find this tactic works extremely well for me.
Ronnie Pye, Developer and designer
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This is the script I use for late paying clients:

Hi ___,
I hope you are well. Ive noticed the
payment hasnt come through yet, so I
thought Id send you a reminder.
Thank you,
Barbara
Heres the template I use for late paying

clients:
Hi ___,
Just a reminder you have an outstanding
invoice payment. Please complete the
payment due before ___.
Thank you for your business.
Kind regards,
Karan Kaur
Karan Kaur, Graphic designer
I always email clients about late payments

on a case-by-case and personal basis. It
keeps things polite and means I can tailor
my message to the type, size, and situation
of the client.
Harry Roberts,
Consultant front-end architect
Wed love to hear freelancer experiences

from all over the world. Email us at
fieldguide@freeagent.com and let us know
how you chase late payment for a chance to
appear in the ebook.
Danae Shell,
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Keeping warm
Food and shelter arent enough - once youve got
money coming in, you can light the fire that keeps
your business going through the cold nights.
This section focuses on planning, cash flow, and
helping you identify what really matters in your
business finances.
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Paul Boag
It took me 13 years of running a business before I finally overcame my fear of

finances. In fact, that fear almost prevented me from pursuing the career that
I wanted.
For 13 years I ran an agency with two co-founders, but about a year ago I decided I wanted
a better balance between work and life. I decided I wanted to strike out on my own, but
the numbers held me back.
For years my business partner had looked after the finances. Unfortunately the rows and
rows of data in his carefully-crafted spreadsheets completely overwhelmed me - the idea
of having to manage all this on my own stopped me dead in my tracks.
A fear of finances is understandable, but Ive learned that avoiding your business finances
can have some real consequences for you and your business:
Its much harder to turn away work because you dont know if you can afford to
You never feel confident that youve saved enough for upcoming tax bills
You dont have a good idea of where youll be in a few months time
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In short you are out of control, and if you are anything like me that is scary. I overcame
my fear once I discovered that spreadsheets werent the only way to manage my business
finances. I now use FreeAgent, and have a completely different outlook on the numbers.
Every business decision I make, large or small, is now backed by an awareness of how my
business is performing. I also know how much I can expect to earn in the coming months.
It is such a relief and it has enabled me to live the life I wanted.
Here is a quick run-down of some of the key numbers I use to feel confident about my
businesss direction.
The four numbers that help me stay in control

When Im looking at my business finances, I have two big priorities: I want to make
confident business decisions, and I want to reduce my worry as much as possible.
1. Retained profit
What it is: The retained profit figure tells you how much money your company would have
left if you stopped trading today, sold the companys assets, collected outstanding invoices
and paid all its outstanding debts. This is also sometimes called retained earnings.
Where to find it: You can find your retained profit figure at the bottom of your Profit and
Loss report. If you have an accountant, this will be part of the reports that they produce for
you and your accounting software will produce this report as well.
How I use it: For me, freelancing is just as much about saying no as it is saying yes.
Using the retained profit figure is the key way that I help myself say no to projects that
either dont appeal or are just wrong for my business. Its hard as a freelancer to turn down
work if you dont know how much money you can expect to flow in and out over the next
few months. That is why I love this figure. I think of retained profit as my cushion. If its
at a level that Im comfortable with, I can decline work or take a break with a lot more
confidence. As soon as it starts to dip below a certain level, I know its time to double my
efforts in promoting myself and my services.
If you are a director of a limited company like me, retained profit is important for another
reason: it tells you how much money you can take out of the company! Your companys
retained profit represents the most you could withdraw as a dividend. If the number is
negative, you shouldnt withdraw a dividend at all.
Here are some of the questions that the retained profit figure can help answer:
Can I afford to say no to this project?
How much can I take out of the company in dividends?
Can I afford to buy that shiny new iPad Pro?
Will the business survive if I take a few weeks off work?
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Things to look out for: The retained profit figure doesnt just include your cash balance,
but also any assets that you have invested in. That means that if you just bought a new
laptop or other large asset, this figure is assuming that you would sell it at its second-hand
value. This confused me for a while as I would never consider selling any of my precious
gadgets!
2. Aged debtors report

What it is: The aged debtors report tells you how much money that you have invoiced, but
have not yet collected. The aged debtors report usually groups the amounts in 30 days,
and shows the invoices that are aged 30 days past the invoice date, 30 to 60 days, 60 to 90
days, and more than 90 days.
Where to find it: The aged debtors reports is part of the standard set of accounting reports
that an accountant or accounting software would prepare for you.
How I use it: I use this report to get a quick view of how much money I should expect to
come in over the next month or so. This helps me to stop worrying about where my next
meal is going to come from. Ideally, there shouldnt be any outstanding unpaid invoices
that have turned red in FreeAgent. But if any are lurking around, thats an excellent sign
that I should be chasing payment. Here are some of the questions that the aged debtors
report can help answer:
How much is due to be paid soon?
Who should I be chasing for payment?
Am I relying on somebody who might not pay me?
3: Pipeline and forecast

What it is: My sales pipeline is a prediction of how many new projects or clients I am
expecting to have over the next few weeks or months. It is a forecast of how much money
I expect these projects will be worth. This is a bit of guesswork, but it gives me an idea of
what might be coming in over the following months.
Where to find it: I use a Customer Relationship Management (CRM) tool called Pipedrive
to help me manage my potential clients and pipeline. There are loads of different options
available to help you build a pipeline and forecast, from a CRM to a basic spreadsheet. The
important thing is to find something that you will stick with and use often. That is because
building up a forecast of your revenue is invaluable.
How I use it: I look at my pipeline after I look at the aged debtors report. The aged debtors
report tells me how much should be coming in over the next few months, then I switch
to the forecast for an idea of how healthy things are looking over the longer term. Being
able to see a bit ahead in the business gives me confidence, and also helps me schedule
upcoming work and judge what my workload is likely to be.
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Here are some of the questions that a sales pipeline and forecast can help answer:
How many projects do I have confirmed? What are they worth?
How many projects am I waiting to hear back about? How likely are they to happen?
Should I spend this morning chasing up projects, or focusing on something else?
Are there any cash flow problems coming up in the next few weeks or months?
4. Cash flow
What it is: A cash flow report shows you the basic incoming and outgoing money from
your business, usually broken down by month.
Where to find it: If you have accounting software, most will produce a cash flow report for
you - otherwise, you can total your banks incoming and outgoing amounts by month.
How I use it: Once I feel confident about the future, I have a quick look at the past to see
how my cash flow performed for the past few months. You can also forecast cash flow
using apps like Float, but for my business, Im more interested in using cash flow as a
simple measure of how I did over the past few months.
At a basic level, I should be bringing in more than I spend. A cash flow report is also a good
way for me to benchmark how much I need to be earning in any given month. I combine
this information with the aged debtors and pipeline reports. This gives me a good idea of
how Ive been doing and whether I need to make any changes to my plans.
Here are some of the questions that a cash flow report can help answer:
Am I spending nearly as much as Im earning?
How comfortable am I with the amount of incoming versus outgoing cash?
Do I need to do anything to generate more income in the short term?
Ive got a few planned costs coming up - do I have enough cash in the bank?
What is my break-even point each month? On average how much do I need to earn?
Things to look out for: Its easy to confuse a cash flow report with a profit and loss report,
as they both report on incomings and outgoings. Heres the difference between the two:
A cash flow report reports on only the money that came in and went out of your bank
account(s).
A profit and loss report reports on:
Money that you have been paid
Money that you will earn (invoices that have been issued but not yet paid)
Costs that you have incurred (whether or not they have been paid yet)
Other costs that may not have been paid in cash, like depreciation of an asset
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If you want to dive deeper into your businesss overall profitability, including outstanding
costs and invoices, the profit and loss report is the place to look.
Feel the fear and do it anyway

Before I overcame my fear of finances, striking out on my own as a freelancer felt like
damning myself to a future of worry and apprehension. Now Im able to make confident,
informed decisions about running my business and Im able to do the work I love with a
balance that works for me and my life.
Paul Boag is a user experience consultant, author and speaker. He helps not-for-profits such as the
European Commission, UCAS and Doctors Without Borders adapt to the digital world. He refocuses
them on user experience and engaging with a new digitally-savvy audience.
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Ready to overcome
your fear of finances?
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Overview
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online accounting software for freelancers.
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expenses, bank accounts and more, helping you keep
your business on the right track.
INCOMING
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Tracking cash flow is a top priority for freelancers. FreeAgents cash flow
view gives you a monthly snapshot of the money coming in and going out
of your business, so you know if youre making or burning cash.
Invoice timeline
Stay on top of your billing at all times with the invoice timeline.
See whats been paid, whats due and whats overdue - so you know
what money youre owed and who you need to chase up.
Live profit and loss
No need to run a report - find out exactly how much profit youre
making this year in an easy-to-read snapshot view.
@freeagent is marvellous. Really enjoy using it. Invoicing is my favourite feature.

Rebecca Shipham, @shipsandpigs
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Accounting reports and what

they tell you
Reference guide: Emily Coltman, FCA
Accounting reports help you find out how your business is doing financially.
Heres an introduction to the reports that youre most likely to find useful as a
freelancer.
Profit and loss report
A profit and loss report is a summary of the businesss income, less its day-to-day running
costs, over a given period of time. This report is also known as the profit and loss account,
P&L account or just P&L.
The profit and loss report aims to show whether the business has earned more in income
than it has spent on day-to-day running costs. If your businesss income is more than its
costs, the business has made a profit; if the businesss costs are more than its income, the
business has made a loss.
The information you get from the profit and loss report gives a great insight into where
and when your business is making or losing money, enabling you to come up with some
informed strategies to increase your profitability.
Note: Income and costs must nearly always be included in the profit and loss report on the
basis of when work was done and when goods and services were used, not on the basis
of when money was received in and paid out. The only exception is for sole traders and
partnerships who use the simplified cash basis to prepare their accounts; these businesses
profit and loss accounts will be prepared on the basis of money in and money out.
Questions you can answer using the profit and loss report
What is my profit margin?
How do my costs compare to last year/month/week?
How does my income compare to previous years/months/weeks?
If my business is a limited company, can it afford to pay me a dividend on its profits?
Balance sheet
A balance sheet is a report that shows how much a business owns (assets) and owes
(liabilities) at a given point in time. If the total of the balance sheet is a negative number, the
business owes more than it has the resources to pay; in other words it is insolvent.
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Your balance sheet will show:

Fixed assets: Also known as capital assets, fixed assets tend to have quite a high cost
(compared to day-to-day running costs) and will be useful to your business over a long
period of time, usually more than two years. For example, computer equipment, furniture
or machinery would be classed as fixed assets. Cheaper items, such as batteries, do not
count as fixed assets.
Current assets: Whereas fixed assets are expected to be retained and used by the company
for a long period of time, current assets are expected to turn into cash within a year. For
example, stock (goods that a business sells), money owed to the business by customers
and any cash in the businesss bank account are all current assets.
Current liabilities: A current liability is money that your business owes which it will have to
pay within a year. For example, taxes, money owed to providers of external services such
as your accountant, and money owed to suppliers are all current liabilities.
Long-term liabilities: A long-term liability is money that your business owes which it
will have to pay in over a years time. For example, if your business has a bank loan or a
mortgage, then the part of this due within a year will appear in the current liabilities, and
the remainder will be long-term liabilities.
The balance sheet differs from the profit and loss report as it shows a summary of how
much your business is worth at a specific point in time. The profit and loss report shows
your businesss profitability over a period of time.
Aged debtors report

An aged debtors report is a totalled list of all the invoices your customers havent yet paid
you for, less any credit notes youve issued to your customers and not yet refunded them for.
You can use the aged debtors report to pick out customers who typically pay you late or not
at all, and target your efforts to chasing them.
The aged debtors report usually sorts the invoices and credit notes by customer and by
date, and groups together unpaid invoices that are due in various time periods. It enables
you to see how much you can expect to receive from each customer and the total amount
that should reach you by a specific date.
The aged debtors report usually divides out unpaid invoices that are due to be paid to you
within 30 days, in 30 to 60 days, in 60 to 90 days and in more than 90 days.
Questions you can answer using the aged debtors report

How much money do my clients owe me?
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When can I expect to receive payment?

Who should I be chasing for payment?
Am I relying on income from somebody who might not pay me?
Aged creditors report

An aged creditors report is a totalled list of all the bills that you havent yet paid, less any
bill credit notes that you havent yet been refunded for. You can use your aged creditors
report to review who you have yet to pay, and use it as an aide-memoire when you are doing
your banking and paying your supplier bills, so that you dont fall behind with paying your
suppliers.
The aged creditors report usually sorts the bills by supplier and by date, and groups
together unpaid bills and bill credit notes that are due in various time periods. It subtotals
bills and bill credit notes by supplier and by time period so that you can see how much
you owe to each supplier and the total amount that you have to pay by a specific date.
The aged creditors report usually divides out unpaid bills that are due for payment within
30 days, in 30 to 60 days, in 60 to 90 days and in more than 90 days.
Questions you can answer using the aged creditors report

How much money do I owe?
Who do I owe money to?
When is payment due?
Do I have any overdue payments to my suppliers?
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How to plan your cash flow for

holidays and long breaks
Paddy Donnelly
Hiking through the Amazon jungle. Climbing to the top of a volcano in Chile.
Standing in the middle of the worlds largest salt flat in Bolivia. These are
the things that spring to mind when I think of my three-month trip around
South America. What I dont think about is how much money it cost me to
miss so much work as a freelancer. Why? Because I planned the finances well
in advance, so while I was away I was able to focus on having an amazing
experience.
How to plan for a long break
As a freelancer, taking time off work is a big deal - if youre not working, youre not earning.
Nobody tells you that you have X days of vacation to take this year. Youre in charge of your
time off, so you need to plan it well. Ive taken breaks from work before, but my
three-month trip around South America was by far the longest Ive had.
I learned a lot planning this trip, and Im going to walk you through the various steps you
should consider if youre planning a long break.
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Review your annual revenue for the past few years

First, you need to know how much money you earn each year. To find this, look in your
profit and loss report for the past few years - it will be called either Sales or Revenue.
Based on those figures and what you know about your business, you can work out a
number that youll need for the upcoming year.
For this example, lets say that your annual revenue is on average 50,000, and thats what
youre working towards again this year.
Recalculate the required revenue for the months youll be away

Now that you have the annual revenue target, you can divide it out by the normal 12
months that you would normally work, so:
50,000 / 12 = 4,167 monthly revenue in a normal year
But if you need to remove three working months from that year, your calculation would
become:
50,000 / (12-3) = 5,556 monthly revenue with a three-month sabbatical
Now you have a starting point. So far, you need to earn 1,389 extra every month to
cover the cost of your sabbatical. But this is just the start - there are a few other things to
consider.
Build in buffers
When taking a long sabbatical from your work, you need to build in a buffer before and
after your break. The buffer before you actually leave on your break lets you deal with lastminute requests from clients squeezing in more work, to deal with unexpected delays, and
of course to plan for your trip!
This will allow you to wrap up your work stress-free for both you and your clients.
So, lets say thats another month off to add into the equation:
50,000 / (12-4) = 6,250 monthly revenue
Its also a good idea to plan for a buffer after your return. You cant expect to return from a
long break and immediately start back to work - it takes a while to get back into the swing
of things, and if youve been away for a long time, it may also take some time to build back
up your list of potential clients.
In my case, I took another month off before I started client work again. I used this month
47
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to work on our Wee Taps apps, ease myself back into designing and find some new client
projects. So, in reality there were five months in the year where I wasnt bringing in any
money instead of just three. The length of time youre actually not earning is very easy to
overlook. Adding both buffers into the equation gives us:
50,000 / (12-5) = 7,143 monthly revenue
Add in the cost of living while on the break

This will depend on what youre doing in your sabbatical. If youre spending three months
working on a pet project at home, then your living costs will be built into this equation
already. But if youre travelling around the world then your living costs may be significantly
higher when it comes to flights, accommodation, tours, visas etc. Lets estimate that youll
need an extra 2,000 a month to cover the cost of living in the three months youre on your
trip:
(50,000 + 6,000) / (12-5) = 8,000 monthly revenue
Consider any other financial implications

One thing I had to take into account while I was off travelling was that the world didnt
stop for anyone else, especially for my clients and their projects. I had a pool of regular
clients who provided me with steady work, however as I was jetting off for three months
they would need a designer to replace me, so I had to face the fact that I would most likely
lose these clients for good.
Keeping in mind that my regular income wouldnt be at the same level once I returned,
I accepted that I would need to grow my pool of regular clients again. This would take
time, so I had to plan that my revenue would also take a hit initially when I returned. If we
estimate that my revenue would be cut in half for the first two months after returning, then
we can take another month off our equation:
(50,000 + 6,000) / (12-6) = 9,333 monthly revenue
The result, and how to earn it

9,333 new monthly revenue - 4,167 normal revenue = 5,166 extra needed per
month
Based on the calculation youre going to need to bring in over 5,000 extra per month this
year in order to account for your three-month trip. This may sound scary at first, but its
perfectly doable with plenty of planning, and its much better to face reality upfront before
your extended break, rather than realising your bank account is empty when youre on the
Inca Trail.
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Now, how are you going to do this?
Ways to earn the extra money

First, evaluate how much youre charging clients. Has your price remained the same
for months, even years? After each project, you should consider the new skills and
knowledge youve learned and build that into your price for the next project.
If your price doesnt change, then the amount of work you take on needs to. Extend
your working hours to evenings and weekends. This isnt fun at the time, but youll
appreciate it once youre on the beach sipping on a margarita.
Communicate early with your existing clients about your break and ask them if
they have future projects which could be moved up earlier. They may not have
considered starting their future projects earlier because of your usual availability.
If youre combining this with increasing your working hours, then you may be able
to significantly increase your income from your existing clients without the stress of
searching for new ones.
Put a little extra away each month. Dont put it off until closer to the time. Start putting
some money away as soon as possible.
Consider new revenue streams. Take this opportunity to think of alternative ways to
make money with your skills. Could you teach students in your industry with tutorial
videos or a paid masterclass? Ship that side project youve been working on and
get it out there to make you some passive income. How about writing an ebook or
consulting?
Planning a long break can be a nerve-wracking experience, but following these steps
and facing the real numbers can help reduce the stress. Overestimate how much money
youll need, build in buffers, communicate early and honestly with your clients and most
importantly, enjoy your break.
Paddy Donnelly is an Irish illustrator and designer currently living in Belgium. He creates apps for kids
with Wee Tapsand has worked with clients such as dConstruct, Foursquare and Mobile Vikings.
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Manage your finances like a boss

Everything from invoicing to tax, designed especially for freelancers
Nail the daily admin
See the big picture
Relax about tax
Create estimates that convert

into beautiful invoices, track
your billable and unbillable time
on projects and keep on top of
expenses no matter where you
are or what youre up to.
Keep track of your cash flow and

project profitability, always know
how your business is performing
so you can plan and forecast
whats ahead.
Set up and configure multiple

sales tax rates and get access
to quick and easy sales
tax reports.
Rebecca Shipham
@shipsandpigs
@freeagent is marvellous. Really
enjoy using it. Invoicing is my
favourite feature.
tech.in.color
@techincolor
I love @freeagent too. Sometimes I
go in just to see that all my accounts
are in order. It makes me feel good.
Well help you get up and running

When you sign up, our super-friendly support team is on hand to guide you
through the set-up process. And once youre using FreeAgent, theyre right
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About A Field Guide to Freelancer Finances

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A Field Guide to
Freelancer Finances
2016 FreeAgent Central Ltd. All rights reserved.
Published by FreeAgent Central Ltd
One Edinburgh Quay, 133 Fountainbridge, Edinburgh EH3 9QG
freeagent.com
Published May 2016 | ISBN 978-0-9935250-1-8
Danae Shell - Editor
Claire McMillan, Scott Forbes - Designers
Scott Forbes, Claire McMillan - Illustrators
Tom McCallum, Jessica Adair, Victoria Shepherd - Copy Editors
Special thanks to Lisa Robb
This guide is not a substitute for advice tailored to your own business from a professional
accountant. Any information presented does not constitute accounting advice.
This guide is provided by FreeAgent on an as is basis. FreeAgent makes no
representations or warranties of any kind, express or implied, as to the information and
content in this book. To the full extent permissible by applicable law, FreeAgent disclaims
all warranties, express or implied.
Although we have made every attempt to provide accurate information, FreeAgent assumes
no responsibility for the accuracy or completeness of the information. FreeAgent will not
be liable under any theory of law, for any indirect, incidental, punitive or consequential
damages, including, but not limited to loss of profits, tax fines or fees, business interruption,
loss of information or data or costs of replacement goods, arising out of the use or inability to
use this guide or resulting from use of or reliance on the information presented in this guide
or supporting materials.
Any errata will be available at freeagent.com/fieldguide/errata.
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A word from the editor

About the authors

Using the break-even point to price

How I take the uncertainty out of fixed-price projects

My biggest pricing mistake

My best pricing tip

Creating a stormproof invoicing process

Credit control for freelancers

How I chase late payments

Overcoming a fear of finances

Accounting reports and what they tell you

Reference guide: Emily

About A Field Guide to Freelancer Finances

A word from the editor

A word from the editor

About the authors

About the authors

Emily Coltman, FCA

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Using the break-even point to price

Using the break-even point

Step 1: Add up all your costs

Using the break-even point to price

Step 2: Plan your capacity for billable days

Using the break-even point to price

Sickness and unforeseen circumstances: 5% (13 days)

Step 3: Calculate your break-even point

How I take the uncertainty out of fixed-price projects

How I take the uncertainty out

Seeing the value of time tracking

How I take the uncertainty out of fixed-price projects

How I track my time

What Ive learned

How I take the uncertainty out of fixed-price projects

Refining the time tracking process

How I take the uncertainty out of fixed-price projects

My tips for fixed-price pricing

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My biggest pricing mistake

My biggest pricing mistake

When you start out, one of the hardest

Julie London, Designer

My biggest pricing mistakes were fixed pricing

Remy Sharp, Developer and founder of Left Logic

I write cross-platform apps and made a mistake

There is no worse feeling than having

My biggest pricing mistake is allowing myself to

Aaron Wheeler, Developer

Steve Folland, Video creator

My biggest pricing mistake

In my first few jobs I was charging

Ive made a fair few mistakes in the past,

I made a mistake in giving a quote

Barbara Marcantonio, UX/UI designer

Losing hours after a project is done is a