Freelancers, entrepreneurs, independent professionals, and even small agencies at some point, all have the same problem — riding the income roller coaster, where in some months you’re overflowing with cash and in others you’re barely scraping by.
When income fluctuates between extreme highs and lows, stress levels rise, sleep is lost, and a constant state of worry begins to take over. I know because I’ve been there.
In the early years of Bourn Creative, I didn’t have a problem finding new clients or landing new business. So while my income has never been a challenge, my cash flow was a big challenge, and that affected the forward movement of my business and the stress levels associated with being a freelancer.
Here’s exactly what I did to get off the income roller coaster and improve cash flow:
Originally, I invoiced once a month and it was easy. This approach worked just fine as long as a client didn’t delay payment. (Which happens naturally if the client pays invoices once a month on a different schedule.) But, it also created a cash flow roller coaster because all of my deliverables were coming in and going out at the same time.
- STEP 1: To even out cash flow, I began invoicing every two weeks, which meant my deliverables were spread out a bit more and those extreme highs and lows weren’t so extreme. Later I switched to invoicing upon project completion, which evened things out even more, but it took up more of my time.
- STEP 2: To make invoicing easier, I began using Quickbooks Online and created invoice templates for projects we do over and over.
Only accepting payment by check worked at first because the project investments were easily payable by cash or check. But over time, as the projects Bourn Creative took on became larger, longer, and more complex, we needed to be more flexible with payment options.
- STEP 3: To make it easy for clients to say yes to large projects, I began offering payment plans, breaking up the total payment into multiple payments, each spread 30 days apart. This also provided dependable ongoing income that I could plan around.
- STEP 4: I gave clients the option to pay by credit card and PayPal to accelerate the initial payment and avoid delays on subsequent payments.
When I began freelancing, many of my projects were all around the same size and length and when you do a lot of small projects and invoice manually, invoicing becomes a lot of work. Completing a large number of small jobs for a large number of clients is also harder and more stressful than completing one larger project for a single client because there is less focus and more people to make happy.
- STEP 6: To reduce stress and add margin in my schedule, I diversified the types of projects I accepted, mixing large, long projects with small, short projects. The long projects with multiple payments over several months provided dependable ongoing income and the short projects provided cash flow boosts and cushions between long project payments.
- STEP 7: To even out cash flow even more, I began focusing on long-term retainer work, offering clients ongoing monthly website support and maintenance packages. This allowed me to create a reliable, stable income base while helping my clients care for their websites.
If you’re like me, you love the work you’re doing, but not the administrative tasks that come along with freelancing or owning your own business. Invoicing manually became a lot of work, especially when I had a whole bunch that needed to be sent out to our monthly website support clients on the first of every month.
- STEP 8: To save time, I automated invoicing for monthly retainer clients through Quickbooks Online. Now all of those invoices are sent on the first of every month automatically.
- STEP 9: To enjoy the benefits of payment plans without the hassle of multiple invoices, I implemented automatic credit card billing. Large projects are broken into multiple payments, with the first payment made immediately, and the remaining payments are billed 30 days apart automatically. With this approach, even if a client delays the project, you aren’t delayed payment.
At certain times of the year, like tax season or when you want to invest in a big conference or when you need internal reinvestment, you need more cash on hand than normal. As a freelancer or business owner, you have the power to adjust payment options to create quick cash infusions by incentivizing specific payment options.
Each year, several clients would request the option to pay for new projects in full before the end of the year to boost their own expenses. This gave me an idea…
- STEP 10: To quickly create a cash infusion at the tight time, I strategically offer a discount if clients pay in full at the start of the project.
- STEP 11: To avoid high credit card fees that go along with large payments, I offer additional savings if the payment is made by cash, check, or wire transfer.
Variety Makes The Cash Flow
The key to getting off the income roller coaster and improving cash flow is variety — variety in the frequency and type of invoicing, variety in the types of payment methods and payment plans offered, variety in the types and lengths of the projects accepted, and in the terms offered to clients.
When you combine variety with a solid, dependable, reliable income base from recurring revenue, your cash flow will even out, your money stress will practically disappear, and you’ll have the ability to strategically plan ahead.