Getting paid is an obviously critical aspect of running your business. We need to figure the appropriate billing method and terms for our culture, clients, and projects. Then we need to know what to do when a client doesn’t respect those terms.
There are a variety of billing methods to choose from. In episode 16 of the Elusive Moose podcast, Molly and Jason explored four common methods they have experienced: hourly billing, flat fee (or fixed bid), target cost, and value-based pricing. Hourly billing is where you set an hourly rate, and then bill for the time it took to complete the job. Flat fee is where you estimate the project based on your hourly rate and offer the estimate as a set price for the project regardless of how much time it actually took.
Target cost is a more obscure method that has emerged in the Agile software development world. It uses a similar method as flat fee to determine the project price, but the price is a target. If the project is over budget, then you can bill at half rate, and if it comes in under budget, you split the reward by billing half of the savings.
In episode 23 of the podcast, Jason goes deep with Jonathan Stark into the world of value-based pricing. Jonathan has been successfully using the method for over ten years and coaches other consultants on how to use the value of a project to set its price.
After choosing a billing method, you need to determine the terms and frequency of your invoices. Terms can range from prepaid (full payment in advance of the work) to due on receipt to net 30 days or net 45 days. Depending on the type and size of the client, they may want to dictate billing terms, and you have to decide whether or not you’re able to accommodate them. Jason mostly works with small businesses where net 30 is a standard practice for all parties, but Molly has dealt with large corporations and government agencies who will only pay after 45 or even 90 days. It’s important to agree on billing terms before you engage in the work so you don’t get caught off guard waiting for payment. Having at least some pre-paid services will help offset longer billing terms.
A (hopefully) rare, but important consideration for getting paid is what to do when a client is not paying your bills on time. You need to make sure you’re on top of your receivables so you can reach out to a client when a payment is late. Most of the time your invoice simply got lost in the shuffle and a simple inquiry will get the process moving again, and get the invoice paid. Unfortunately in some cases, you will need to have the courage to stop working for a client, either temporarily or permanently, if getting paid becomes an issue. It’s your livelihood at stake, and as long as your terms are well defined and agreed upon, there’s no reason to continue working with a client who can’t respect them.
There are several factors to consider around getting paid. Learn about the various methods for billing and set the terms and frequency of billing that works for you and your organization. Be sure to communicate your terms with your clients and make sure they understand how and when you will bill them. And then get to work!
- Don’t forget to send the invoice! It may seem obvious, but be sure to have a system in place that allows you to consistently bill for your work. If it’s not easy, you may find yourself pushing off the task of billing, slowing down your ability to get paid.
- Learn about the various billing methods, choose one that works for you, but stay flexible as some of your clients may need to use a variation of your method. If the work is aligned with your mission, don’t let the billing method stand in your way of engaging with the client.