How to Manage Your Cash Flow as a Freelancer

Working freelance has many advantages, including flexible hours, the opportunity to be your own boss and more control over your career. However, many freelancers know that periods of financial instability can make it stressful to work this way.

Managing your cash flow is absolutely vital if you want to succeed as a freelancer and it removes the stress of worrying about paying the bills each month. Freelancers have no guarantee of a steady, regular pay cheque, but there are plenty of tips to help you manage cash flow as a freelancer and make the most of freelance life.

If you're freelance (or thinking of going freelance in the near future), see below for our top tips to manage cash flow as a freelancer and staying on top of your finances.

Get paid promptly

Many freelancers are familiar with the struggle of chasing invoices but getting paid on time is vital when you have rent and bills to pay. One of the best ways to manage cash flow as a freelancer is to ensure you are getting paid promptly, there are several ways to go about this, including:

Clear payment terms

Don't be afraid to make your payment terms stricter; fellow freelancers might allow 30 days for payment but this doesn't mean you have to. Include clear payment terms in your invoice and reduce the window to 15 days if necessary.

Get serious about late payments

You might be able to forgive a one-off late payment, but don't let it set a precedent for how you conduct your work. If a client's payment is overdue (or if they continue to pay late), stop working for them until the payment comes through. Your time as a freelancer is just as valuable and there's no reason why you should have to work for free.

Payments upfront

If you want to make your cash flow more reliable, request payments upfront before you even begin. If necessary, stress that this peace of mind will improve the quality of your work. After all, no one can work at their best if they're stressed and chasing up late payments.

Create a cash flow statement

A cash flow statement is simply a record of income and expenses and you can easily create one using a spreadsheet tool. Create two separate columns; one for income for the month and the other for expense.

List the essential expenses first (e.g rent, bills, food) and then you'll be able to see how much money is left to play with. Laying out your finances in black and white is a highly efficient way to manage cash flow and prevent you from being caught short. Many people find they're less likely to make an extravagant purchase if they can see exactly what their incoming and outgoing cash flow is.

There are several easy to use apps available to help you manage cash flow as a freelancer and you'll be able to update expenses on your phone if you're out and about.

Cash flow forecasting

Our last tip for managing cash flow as a freelancer is to forecast your cash flow. Freelance work is unpredictable by nature; you may have some very lucrative months and then periods where work is thin on the ground. Preparing a cash flow forecast helps you to plan for the future and ensure you have the money for essentials when you need it.

Cash flow forecasting helps freelancers weigh expected future income against expected expenses. It's also a great way to help save during more lucrative periods (for example if you know you have a lot of work coming up in two months, you can plan to put some money away).

Forecasting for the future also means you can budget for one-off expenses that might be coming up, e.g a holiday or a car MOT. There are several apps and software programmes designed for cash forecasting and scenario planning, so you can get the most transparent idea of your future finances.

Keith Graham - Personal Accountants and Tax Services

Are you a freelancer in need of help with your finances? Get in touch with the experts at Keith Graham Chartered Accountants for a range of personal tax and accountancy services. We can help you prepare for the future with our retirement planning services, ease the stress of submitting a self assessment tax return or provide professional help and advice regarding your personal tax.

We can put together a plan that helps you to manage cash flow as a freelancer, minimise tax liability and ensure you pay all personal taxes on time. For more information about our personal tax services or to discuss your needs, give us a call today or contact us online.