Return to site

How to set payment terms if you’re a freelancer or contractor

· Costs,Cloud Accounting,Bookkeeping,Small business

Following up on late or non-paying customers is no freelancer’s favorite task. Which is precisely why you need to set payment terms up front – and in writing – before you work with a new client or customer.

By communicating and agreeing on the non-negotiables for doing business with you, you’ll avoid awkward misunderstandings, frustrating disputes, and in most cases, the ugly hassle of debt collection.


These tips will help you pave the way for consistent cash flow by setting clear payment terms.

Minimum legal requirements

As a business owner you are only required to include your business name and address on your invoices. But it’s in your best interest to include more information than the law requires.

It’s recommended that every invoice include:
• The invoice date
• Complete contact info
• Your company/ PPS number
• Payment instructions (i.e. acceptable forms of payment and when payment is due)
• An itemisation of services

If you haven’t shared your payment terms in writing and a client won’t pay, you have little recourse. You won’t be able to charge a late payer interest on their balance owing, let alone engage the services of a debt collection agency.
In addition to including your payment terms in clear and simple language on every invoice, be sure to state your payment terms early on.
Send along your policies in an email, include them in an agreement or contract, and/or point new clients to the terms and conditions outlined on your website.

What to include in your payment terms

It’s up to every entrepreneur to decide when and how much they need to be paid in order to operate a smooth, positive cash flow business.

As a starting point when setting payment terms, think of the troubles you’d like to avoid and how you could prevent them with the right policies.
In addition to when payment is due (i.e. on receipt of invoice, 30 days credit) you might want to include:
• Pre-payment requirements (i.e. a full or partial deposit)
• Incentives for early payment
• Late payment fees (e.g. 2% on the balance, accruing monthly)
You might also include a description of the products or services offered, delivery timelines, a reminder of the terms of your agreement, and what will happen if either party doesn’t stick to the policies in place.

Final thoughts

For freelancers and contractors, requiring pre-payment in the form of a full or partial deposit can really help avoid the “feast or famine” cash flow cycle.
It can feel a bit intimidating to ask for payment before you’ve completed the work – but think of it as a client screening process. After all, it’s only the ones who understand you are offering a valuable service and are willing to pay for it that you want to work with.
As a secondary benefit, when clients invest up front they recognize they are working with a professional and act accordingly. And if it turns out you do have a few late paying customers from time to time, those deposits you’ve collected will ensure you have the cash to carry you through.

All Posts

Almost done…

We just sent you an email. Please click the link in the email to confirm your subscription!