As a freelancer, I’ve grown accustomed to the uncertainty of being paid. It’s a constant balance between money in and money out,
I’ve also worked both ways – as a freelancer just “selling” my own labour and as a production company, engaging subcontractors and incurring costs on behalf of a client.
The first is easy as it costs me nothing in advance (except maybe parking, coffee and lunches). I can generally work to my employer’s payment schedule, although I always try and negotiate terms in advance or at least talk to other freelancers to get a handle on how often they get paid – weekly, fortnightly or monthly. I’ve been very lucky that my last couple of contracts have been with a company that has cashflow and pays suppliers twice weekly, so generally I can invoice on a Friday and get paid the following Friday. It’s comforting to know that every week you should get paid (and if for any reason you’re not, it’s only a few days until the next pay run).
That doesn’t mean all employers work like that. I’ve worked for one company where I can be sitting in the office with the bosses and will remind them that suppliers need to be paid….today (which is my job as a PM), and I will still not get paid. There’s quite often been the “Yes, it’s on my to do list. I’ll pay you tomorrow” and tomorrow has turned out to be a week later. Or in one case, not at all (between my husband and I we have one outstanding invoice and one outstanding expense claim with one particular company. It’s been written off now as a bad debt).
As a production company though, it’s slightly harder. You’re managing not only your income but also other people’s. And more often than not, you’re working with a client or an agency that pays on 30 or sometimes even 45+ day terms. This in itself baffles me that as a small sole trader, I should be bound by big business payment terms. And so many times I have heard them say “I’m waiting for my client to pay me”. Surely a big business / agency can afford to bankroll a small project (under $10k) without having to wait for their clients money to come in?!
I have never used the “I’m waiting to be paid” excuse to delay paying someone by longer than a week. I would rather have no money myself than gain a reputation for not paying people I hire. I always make sure that if I’m hiring a subcontractor, I have a reserve to cover their costs within their payment terms. Fortunately I have a husband in the industry who understands and will bankroll me if times get tough.
If for some reason I think I’ll be short and unable to pay a supplier, an open conversation to ask them to extend their terms is the next step. More often than not, if you have a good relationship with them, they’ll agree to that.
Open communication, transparency and reliability are key. Treat people with respect by paying them on time and keeping an honest dialogue open, and they’ll be happy to be lenient if you can’t make bank exactly on time.
My key advice for anyone working as a freelancer to help manage their cashflow:
Negotiate employer payment terms up front
Invoice regularly and on time. Consistency is key to being paid regularly if you’re on a long term project
Keep a reserve for the times you’re not working or employers are slow to pay
Have a separate bank account put aside for your taxes
Tips for working as a small production business to help manage your cashflow:
Clearly have payment terms set out on your website
If you can, bill 50% upfront to cover any out of pocket expenses
Be honest with your subcontractors if you’re having cashflow issues, they’ll most likely be able to wait
Have a backup fund (the bank of husband is my go to) to cover any out of pocket costs, especially if you haven’t negotiated a deposit from your client
Always pay suppliers before yourself. It generates so much goodwill if you put their needs before your own. Remember: Nobody respects someone who drives a Porsche while his employees are going hungry