Last editedJan 20222 min read
Cash flow is the movement of cash in and out of a business. Freelancers/sole traders need to do everything possible to optimise it. This generally involves a combination of managing spending and making sure that all clients reliably pay in full and on time. Here are some tips to help.
Keep control of your own spending
When the topic of freelance cash flow is raised, it’s easy to jump to the issue of managing incoming payments. This is, of course, vital to the success of any business. At the same time, a penny saved really does buy as much as a penny earned. You, therefore, need to look carefully both at what you are buying and at how you are buying it.
For example, sometimes the lowest-priced deal really is the best. In many cases, however, it’s worth spending a little more for the best quality service. This often saves you time, money and hassle in the long run. Sometimes, you don’t actually need to buy something at all. You may be able to do without it and if not you can hire, lease or rent it as necessary.
Similarly, whenever you do buy something, check the most tax-efficient way of doing so. For example, check if a purchase qualifies as a tax-deductible expense. Keep all paperwork necessary to make tax claims. You don’t usually have to hold on to physical paper but you do need to make sure that any scans are totally legible.
Get maximum value from your assets
Never let an asset lie idle if you can possibly avoid it. This refers to anything from your business premises (if you have them) to your equipment to your staff, to your customers. In fact, your customers are far and away your most important asset so make the most of them.
Firstly, you should always be examining both your pricing model and your prices to make sure that they are appropriate. Secondly, you should always be looking for opportunities to bring even more value to your customers for example by upselling and cross-selling.
You should also try to leverage existing relationships to build new connections. Even something as simple as customer reviews/testimonials can help to secure new deals. The more income you have relative to your expenses, the easier it usually is to keep your cash flow healthy.
If your billing is ad hoc rather than recurring make sure you send invoices as quickly as possible. For both ad hoc and recurring invoices make sure that the invoice is addressed to the right person. Also, make sure that it has all the details they need to approve it.
With PO invoices that should be as simple as adding the PO number. You may, however, also want to include a clear description of the goods/services. With non-PO invoices, you definitely need to be clear about what the invoice is for.
By far the easiest way to manage invoices is to invest in proper accounting software. Its many benefits include the ability to raise invoices automatically. Payments will be automatically reconciled with the respective invoices and you can automatically issue reminders if there is an issue with payment.
As a bonus, using a proper accounting package will make sure that you are ready for the Making Tax Digital project.
Try to put clients on direct debit
In principle, it’s generally a good idea to offer clients a choice of payment methods. In practice, you usually want to steer your clients towards direct debit if you possibly can. Direct debit is a pull-based system. This means that you are in control of when you get paid.
Before open banking, the main disadvantage of direct debit was that it was relatively slow. Now, however, GoCardless is able to offer Instant Bank Pay. This uses the direct debit system to collect immediate payments. These are great for dealing with rush projects and unexpected expenses.
What’s more, GoCardless integrates with many other software packages including the main accounting packages. This means that you can spend less of your valuable time and energy chasing payments and more on your actual work.
We can help
If you’re interested in finding out more about improving cash flow as a freelancer, then get in touch with our financial experts. Find out how GoCardless can help you with ad hoc payments or recurring payments.