Know the Rules on Getting Paid
Teacher: Julia Miller
The good news is you've left Dilbert in the dust of your old corporate cubicle. The bad, or shall we say challenging, news is that you'll have to figure out a way to replace that steady paycheck.
There's potential to make — and keep — more money in your brave new world as a free agent. But acting as your own bill collector comes with the territory. Here are some tried-and-true rules for getting paid:
Rule No. 1. Never agree to a
project without an agreed upon price unless you take the term "free"
Rule No. 2. Agreements should always be in writing and signed by all parties involved.
Though it sounds like common sense, a lot of free agents don't want to hassle with contracts, especially if they already have an existing relationship with a client. But you have to cover yourself legally. This doesn't give you license to draw up a contract that only a lawyer can read, however. It simply means writing something that might say, "Here's what I'll do, here's when I'll do it, here's what it costs to get me to do it. Pay half up front or half at such and such a time, the rest upon completion."
Some in the free agent community, particularly those in highly specialized technical fields, believe their expertise allows them to bypass traditional contracts in favor of a verbal agreement later firmed up, say, via email. As one Internet entrepreneur put it, "I look at the technical talents I possess as the keys to operating my clients' business. If there was a dispute and I shut down their website, they would suffer immeasurable amounts of bad publicity." Nonetheless, no matter how much you trust a client and how much confidence you have in your own talents, you're wise to cover your bases with some kind of formal, written agreement.
Rule No. 3. Send out your invoices in a timely manner.
To help ensure clients pay within the normal 30-day billing cycle, make sure your invoices are clear and timely and include the exact amount agreed upon for services delivered. Make sure the date is accurate, and you might even want to state the date when payment is due. "Timely" means sending invoices out in the same month in which you perform your work, not next April when your accountant is screaming at you. Also consider a discount for prompt payments. Five percent or less is usually sufficient.
Rule No. 4. Follow up.
If you have slow-paying clients, don't hesitate to send out a friendly letter with another bill marked past due. Some experts even suggest calling clients on the 20th day of the billing period to see if they've received the bill. Then, if you should need to call back or send a letter to collect on an overdue payment, you can make the embarrassment work in your favor. If you do need to send out a reminder letter to a client, make it firm and short, yet still somewhat friendly and sympathetic. You want to maintain good relations with your clients, realizing that he or she may have temporarily overlooked the billings. Then, if necessary, send a less sympathetic letter that says something like, "If this matter isn't resolved in the next 10 days, I'll be forced to consider legal action."
Rule No. 5. Don't extend credit,
at least in the beginning stages of your business. You'll only be asking for trouble. But if you change your mind down the road, do all you can to check out a potential client's financial reputation.
Rule No. 6. Know where to go for help.
Most states have an arbitration system that can help you collect debts without an attorney. You can even look in the phone book for your local Better Business Bureau, which can serve as a forum for arbitration. If the debt is old and your client has skipped town, you might consider turning the debt over to a reputable collection agency, which often costs as much as 40 percent of the recovered money. Finally — and many veteran free agents will be shaking their heads in agreement here — you may even be forced to resort to that last ditch show-me-the-money tactic — suing a client in small claims court. Just remember that old saying: You can't squeeze water from a stone.
Rule No. 7. Staying solvent also means maintaining your sanity,
and there are plenty of software programs available to help you manage your money and cut down on paperwork. Quicken, Quickbook and Microsoft Money are all programs geared towards the free agent.
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