Tuesday, April 29, 2008

Freelancer Tips on Collecting Money

Following up on the previous article on how you should charge as a freelancer, a few readers has also voiced their concern on the money collection part. This is a tough one, account receivables, or in most freelancer’s personal dealings and experience, they are more commonly known as bad debts.

Your ability to collect money after delivering your service would be detrimental to your cash flow and subsequently, the survival of your freelance license, before you go back working for that evil boss again. It’s like how you evaluate a company from the stock exchange by looking at their cash flow, as that will directly tell you the liquidity status and how healthy the company is. If there’s always more cash flowing out than in, that’s something to worry about. Even if a company is making a lot of profit, it doesn’t not necessarily means they are healthy. You need cash, not profit, to keep your operations running.

So, what is the best way to collect money, without resorting to bloody pig heads ala ah-long style.

Tip 1: Know thy Customer
This is something that you can’t do overnight. You can only know your customer repayment credibility after working with them on a few projects. Start with smaller projects before going to bigger ones when dealing with new customers. If any of them showing signs of delayed payments, at least you won’t be too badly affected. Keep the 80/20 rule in mind, it’s better to focus 80% of your effort in keeping the 20% of your paying customer satisfied and happy.

Tip 2: Milestone Payments
Divide the projects into several chunks or milestones. With each completion, payment must be made before proceeding to the next milestone. It’s also a good idea to allocate the smallest ratio to the last milestone, since that would be the hardest cheque to redeem. For example, if your project has got 3 milestones, you can use a 50% payment for milestone 1, 35% for milestone 2 and 15% for the final milestone.

Tip 3: Keep the Key
Use this only when dealing with new clients where you have heard dodgy stories about them. Well, if you can avoid them, all the better, but sometimes, beggars can’t be too choosy. If there’s certain key feature that you can disable, you should insert them together to act as a self-destruct mechanism. This way, if they don’t pay up, you still have the last card. This tactic however, is a lose-lose situation. So if possible, you should avoid engaging such clients in the first place.

Tip 4: Establish a Reputation
If you have a strong track record, with influential friends in the field, it’s would be additional bonus when it comes to collecting money. A strong network amongst the freelancers in your particular field will also give you an idea about the repayment capabilities of certain companies, and also to warn you about potential blacklisted companies that do not honor their words.

Tip 5: Black & White
Ensure that you develop proper recordings on your dealings with the clients. This way, you can avoid heated arguments and emotional face-offs in the event of misunderstanding. There might also be situation where in the midst of the project, your client might just stop replying to your emails and phone calls. If you have a “Stop Work” clause, where they are to remit partial compensation, it will reduce your loss and also save you time on following up with these cold-dishes.


These are the 5 tips that I find useful, and if you have anything to add from your personal experience, feel free to list them out in the commentary.

Yeah, playing debt collector is hard, but it’s a necessary skill that we need to develop in order to survive in the game. Here’s a list of nice guidelines which you can use if you are ever faced with debt issues


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