Starting as a freelancer? Here’s how to manage your cash flow

January 11, 2018 at 11:38 PM Tags: Productivity


Whether you are just starting your freelance career or you are already a seasoned professional, managing your finances is very important. Here are the most valuable tricks.

Choose a good accountant

It might sound odd, but having a good accountant is essential, even if you only send monthly bills. Your accountant will, among other things, keep you aware of the big payment deadlines such as VAT, and help you stay on top of all tax and social security matters.

Beware the payment terms

The time between the moment you send your invoice and the moment your client pays is crucial. Which means you might have to wait 1, 2 or even 3 months before you get to cash your first bill. Even more: if the start date of your contract is close to a VAT deadline and your client has very long payment terms, you might even have to “advance” the VAT payments before you actually get paid.

Make sure you get paid

Sending a bill does not necessarily mean it gets paid. You will have to do some follow-up with your client. If you don’t use billing software, make sure you send a gentle reminder prior to the due date, and check your bank account regularly. Your first overdue payment reminder can be sent 2 or 3 days after the due date.

Don’t forget taxes and social security are on you

As a freelance consultant, you usually have very little overhead. But it doesn’t mean all the cash that lands in your bank account is net profit. You will have to:

  • pay VAT to the state
  • send provisions for income tax, both for your company, if you have one, and for your personal income
  • pay social security contributions

Both amounts have to be paid regularly: every 3 months for social security contributions and VAT, and before well-defined deadlines for income tax.

Your accountant will be your biggest help: they will remind you of the deadlines, and also help you estimate the amounts that are due.

Think about holidays and “bench time”

As a freelancer, your only income comes from your invoices. And you can only invoice if you work, which means you will have to make sure you have enough cash to compensate for the periods when you do not work: holidays and the time between missions.

As a general rule, gradually building a buffer of 5 to 6 months’ salary is considered good practice. Of course, you cannot do that right away, but make sure you put enough money aside every month to reach that objective as soon as possible.

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