How to invoice (and not get stiffed) as a freelancer

I posted last week about freelancing and how it can ease the transition from full-time employment to full-time indie hacking. One thing I didn't touch on a whole lot though, was how to get paid. And that's kinda the most important part.

I'll start by talking about how to invoice, and how to actually get paid. Then we'll talk about what to do when you get that sweet, sweet payment. Then we'll talk about what to do if you don't get that sweet, sweet payment.

Low-tech invoicing

Honestly, I've found that a simple PDF export from a Google Doc template is sufficient for my needs, and probably will be for 90% of indie hackers. It just won't work well at scale (e.g. lots of clients or teammates).

What to include

If you want to keep it simple, create an invoice that includes the following:

• Your business contact info
• Client's business name
• Invoice number
• Issue date
• Due date
• Accepted payment method(s): It's a good idea to give a few options. Cash and check are no-gos, so you can either take a credit card, an ACH bank transfer, or a transfer service like Stripe, Venmo, Square, etc. My two cents: Emphasize ACH, as you won't incur any fees.
• Brief description of services rendered: E.g. "software development"
• Itemized list of tasks completed: IMHO you can skip this unless your client asks for it. Some clients want it, some don't.
• Price: If it's a time and materials (T&M) contract, include hours and rate. If fixed bid, just include the agreed upon price for the relevant milestone (plus any change request charges). If it's a retainer just include the agreed amount.
• Costs: If you incurred any additional costs on a T&M contract while rendering the services, itemize these. It's a good idea to attach receipts too.
• Total due: The price plus the costs incurred.
• Personalized note: Not necessary, but it helps to build that relationship.

If you take that and run with it, you'll have a solid invoice. But there are ton of templates out there too if you'd prefer to go that route. There are even free invoice generators, and some of the tools below offer free invoicing.

What to do once you create the invoice

When you send the invoice, write a personalized message in you remail. And in the subject line, include the invoice number and due date.

From there, you'll have to keep an eye on it. Make a note in your calendar or todo list to follow up on a certain date (or this could just be a recurring event in your calendar) if you haven't received payment.

When an invoice is paid, mark it as such so that you can easily keep track of payments. If you're using Google Docs to create your invoices like I am, it can be helpful to create a "paid" folder and drop invoices in there when they get paid. Quick and effective.

It doesn't end there, but let's talk about other invoicing options before going deeper.

Top invoicing tools

• Stripe: Stripe has a solid invoicing tool.
• Paypal: Paypal also has invoicing, but they take a pretty big cut.
• Harvest: Time tracking and invoicing software. I used this at the agency I used to work for and it was great.
• Bonsai; Time tracking and free invoicing.
• Honeybook: Proposals, contracts, invoicing and more.
• Lili: Invoicing software
• Dubsado: Time tracking and invoicing
• Wave: Invoicing and free accounting tools

Freelance marketplaces also handle a lot of this stuff if you choose to find clients through them. Here's a post with a ton of options

A few notes on your contract

Of course, before you do any of this, you've gotta have a contract in place. If you're using something like Upwork, the contract will be handled on their end. If not, grab an SOW template and customize it for each client.

There are plenty of things a good contract should include but, here, I'll just point out the details that are necessary for invoicing:

• Detailed feature set (particularly for fixed bids): You'll refer to this to inform your work, as well as to settle any disputes.
• Change management process: For fixed bids, changes to scope will incur extra charges, and they need to be aware of how this works.
• Payment terms: This is obviously the big one here. Stipulate how soon they need to pay. I prefer "Net 15" which means they have to pay within 15 days of the invoice date. And make it very, very clear what happens if they miss that date. For example, you might outline a warning at 5 days late, a weekly late fee beginning at 10 days, and a moratorium on work at 20 days.

I know this seems awkward and overly formal, but it's really helpful to be able to refer to the contract later, if any issues should arise. If you're not going to do it, I get that. Just hedge your bets in other ways (upfront payments, frequent invoicing, etc.).

When to invoice

As a general rule, it is best to invoice frequently. This helps cashflow, increases likelihood of payment (smaller amounts due), and mitigates risk of nonpayment (getting stiffed on a week of work is easier than a month of work.)

If you're doing a fixed bid, you'll need to get approval on the milestone before invoicing. My advice would be to take a downpayment, then set milestones for every week (two at the most). A regular cadence will increase likelihood (and speed) of payment.

If it's T&M, invoice on a reguarl basis. Preferably weekly.

If it's a retainer, it should also be regular, but it doesn't need to be frequent. In fact, from a cashflow perspective, it's best if it's monthly or quarterly, as long as you're good at managing your money.

What to do when they pay (and how much to set aside for taxes)

Whatever payment method they choose, make sure it goes into your business bank account. You don't want it going into your personal accounts, as that can get get confusing from accounting and tax perspectives. It makes transfers easier if the accounts are at the same bank or credit union.

Once your receive it, mark the invoice as paid (if you're going the low-tech route).

From there, you can transfer whatever amount feels good to your personal account. Immediately when you do this, set aside 30% of what you transferred for taxes. I have a separate savings account for this, and I don't touch it until I make a tax payment (which you're supposed to do quarterly). I know this part of it sucks, but it's super important. Otherwise you'll be paying this year back next year, while also trying to pay next year's taxes.

And it's always nice to send them a thank you and confirmation of receipt.

What to do if they don't pay

I'm grateful to say that I've never been stiffed by a client. But it's a real possibility, particularly when you're working with a stranger online.

This is one of the biggest benefits of billing through a marketplace like Upwork. The money usually goes into escrow, so they can't just hold onto it. And they have ways of handling disputes. But if you aren't using something like that, it's important to have processes in place.

Handling disputes

If someone is disputing an invoice, it means they don't think that it is accurate for some reason. Maybe they think it's too high, or that the service provided wasn't adequate.

Honestly, a dispute is a much better situation to be in than a customer just not paying (which I'll cover below). Talk to them. Be friendly and have an open mind. Most disputes can be resolved in a way that makes both parties happy. Jump on a (video) call. Have an earnest conversation. And come to an agreement.

Don't be a pushover, but don't be unreasonable either. Refer to the contract as much as possible and base your decisions on that. If you don't have a contract, then the confusion probably comes from your oversight and you may need to acquiesce, unless you have some other written documentation (emails, etc.) that make your case.

If it's getting out of hand, it is possible to hire a 3rd-party mediator, but I'd avoid this expense if possible.

Avoiding late payments

The best way to not get paid late is to be proactive about it.

• Upfront payments: Get them to pay up front. It's the only way to avoid late payments. Retainers are beautiful things.
• Take a downpayment: If you're doing a fixed bid, this is a great way to make sure they're good for the money up front.
• Be very clear about the payment terms and due dates: And confirm that they understand everything, including what happens if they don't pay.
• Have a contract: Like I said earlier, have a signed contract that you can point to.
• Make paying easy: Reduce friction by offering multiple easy payment methods.
• Build a friendly relationship: Stiffing a friend is hard to do.
• Invoice frequently and regularly: As I mentioned before, this is one of your best ways of reducing risk.
• Follow up the day after the due date: Include the invoice (with an updated due date)
• Stop working with people who don't pay: Obviously, if someone is consistently late, it may be time to go your separate ways. They aren't valuing or respecting your work, and it's not worth the hassle and stress of dealing with this over and over.
• Trade credit insurance: You can get insurance that protects you from nonpayment. This is something to consider.. but IMHO it's a waste of money. Just hedge your bets in the ways I've suggested and you won't lose as much as you would have paid the insurance company. Just my two cents.

What to do if a payment is late

Hopefully, the tips above will prevent this. If not, here's what you do.

1. Follow up: Just casually check in about it. I'd recommend doing it a day or two after the due date. Nine times out of ten, they'll get it paid now.
2. Warning: If they have not put things into motion for payment X days after that (I'd say 5 days) after the due date, give them a warning. This should be a little more firm, but still personable and professional. Ask them to help you better understand the delay — it might be an easily resolved issue of miscommunication, forgetful accountant, or who knows what else. Remind them of your late payment policy.
3. Offer a payment plan: At this point, it can be a good idea to offer solutions. One possible solution is a payment plan, particularly if their reason is a cash flow issue. If you go this route, make sure they put something down now as a show of good faith.
4. Get on a video call: Like I said in the "disputes" section above, it can be a good idea to get on a call to discuss. Emails can be impersonal. It's harder to stiff a human.
5. Resolve any issues: It's possible that they aren't paying because they aren't happy with your work. Fix these issues, as long as they are reasonable and within scope. If not, then push back.
6. Begin charging late fees: If you've stipulated it in your contract, then begin charging these at the specified date (maybe 2-4 weeks after the due date). And let them know. From what I can find, 1.5% is pretty standard, but I feel like 5% would reasonable TBH (and I did see some examples of that). Some examples were even as high as 8%.
7. Stop delivery: At this point, you can keep working, but stop delivery of the code, design assets, etc. Instead, deliver builds, static images, etc.. This way they can see that you're still providing value, but you're maintaining your power. If they want the asset, then they need to pay. Simple as that.
8. Stop working: If they haven't paid within 3-4 weeks, stop working until they resolve the issue. Do not deliver your most recent work.
9. Send a debt collection letter: If they still aren't paying, send a letter outlining the debt and stating that you plan to collect if it isn't paid by a designated date — maybe another two weeks.
10. Send a final notice: If they don't pay by the date stipulated in your debt collection letter, give them a final notice. Let them know that you are initiating next steps, tell them exactly what those are, and tell them that they can put an end to it by paying immediately.

Keep referring them to the contract. This is your single point of truth, and you should lean on it. This is why you created a contract in the first place.

At this point, you'll have to decide whether you actually want to escalate the situation. If you invoiced frequently, then it may not be enough money to be worth legal action. But there are a few options here:

• Lawyer up: If you think it's worth it, then get a quote from a lawyer. This will get expensive, so it generally is not your best option.
• Small claims court: At least in the US, you can bring people to small claims court without a lawyer. This is a cheaper option, but it's a lot of work with no guarantees. Make sure it's worth your time.
• Invoice factoring service: This is a service that will pay you the outstanding amount minus their cut, then they'll take what they collect. Their cut can be pretty huge. This is for outstanding invoices that are no more than 30 days late.
• Debt collection agency: This one is for invoices that are over 30 days late. Again, they'll take a big cut.
• Walk away: Sometimes, it's best to just walk away. Weigh how much it is worth to you and make your decision. At a minimum, you should walk away from the client, of course.
• Fix your processes: Do a post-mortem to understand where things went wrong? What can you do better? And what terms or processes can reduce your risk? (Hint: Get upfront payments)

You probably won't need any of that. But if you do, I hope this helps.

What did I miss?

---

Subscribe for more tips, how-tos, and case studies 👇