May, 21 2009
Independent Contractor Pay Day? Maybe not.
Posted by Liz GreenePay Day is one thing full-time employees take for granted, but when becoming an Independent Consultant the situation changes starkly. Waking up to find a reliable direct deposit paycheck waiting for you in your bank account becomes a thing of the past. It sometimes becomes a battle of wills between the consultant and the client – who will outwit and outlast the other party?
We hear from our staff that consultants say “invoicing” is one of their biggest headaches when it comes to running an independent consultant practice. It is one of the back office responsibilities that consultants take on in order to reap the benefits of a lucrative and exciting independent career, and it is one of the first things they realize they may need help with. Luckily, as the consulting back-office experts, we’ve got some tips to help you take this tedious task from painful to productive.
Gene Zaino, CEO and President of MBO Partners, says the whole process of invoicing and collections has to start with recording your time. “The most common problem that consultants have is that they neglect to record or enter their time,” Gene says. “This leads to lost hours, since it is always hard to remember everything that you did from a few weeks ago, and it certainly leads to late billings and lost cash flow.” He suggests recording your time every day at the end of the day – no matter what. You can have the best system in the world, but if you don’t record your time, you’re hurting your business.
The next step is to make sure you’re invoicing correctly and in a timely manner. Here are some tips:
- Negotiate your net terms – When you sign your contract , make sure that you have negotiated everything including your net terms. They should be reasonable and within industry standards.
- Setup a real invoicing system – Process your invoices on a regular basis.
- Follow your client’s invoicing guidelines – If they require a PO number, make sure it’s on there! If you forget to follow directions, it’s no one’s fault but your own that you don’t get paid.
The final aspect of ensuring you get paid for the work you do is going after those clients who just won’t pay. You need to get comfortable acting as your own advocate when it comes to collecting on your invoices. One good place to start is mentally and emotionally separating yourself from your business. When you go after an outstanding invoice, you’re not saying, “Can you pay me? I did all this work. I’d like to get paid for it.” You’re saying, “My Company has performed the duties outlined in the signed contract, and per that contract it is incumbent upon you, Client Co., to fulfill your responsibility to pay the outstanding balance within the agreed upon time period.” It isn’t personal. It’s business. But it’s your business and you are the one responsible for whether or not you get paid. Learn the standards for gentle but firm collections follow-up, and how to gradually escalate your grievance. Make sure your collections efforts stay professional, and that you don’t allow your financial stress to bleed into the exchange. Finally, if a client really won’t pay up, be prepared to get third party collections or even your lawyer involved. And as you know, that can get pricey – especially if you jeopardize an ongoing client relationship.
One way to avoid the time and expense of dealing with invoicing and collections for your consulting business is to hire a third party to manage that aspect of your business. It’s a great way to offload the busy work and do what you do best – bill hours! After all, if you’re not billing hours, collections will be the least of your worries.
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Liz Greene at 07/07/2010 13:20:53
Thanks for your comment, however you are quoting me out of context.
What I wrote was,
"Follow your client’s invoicing guidelines – If they require a PO number, make sure it’s on there! If you forget to follow directions, it’s no one’s fault but your own that you don’t get paid."
That's a very big IF. If you don't follow your client's invoicing guidelines and you aren't following their reasonable instructions, then of course it is your fault you aren't getting paid.
I am not saying that a consultant who is following the proper steps is at fault for not getting paid, that would be blaming the victim and that's not at all what I mean. People who perform work on an agreed contract should of course get paid assuming the work meets the criteria agreed on.
Try reading the article again. I think we have some good advice in here about what to do if you ARE doing everything right on time and you still aren't getting paid. Professional and non-emotional escalation of collections steps -- whether conducted by you or a third party -- is where to begin.
Our organization actually performs collections on behalf of the consultants who work through us as a side component of what we do, and this is an option to consider for your future engagements. However, everyone conducts business at their own risk -- even we cannot guarantee that the clients you have selected to perform work for are credit worthy.
Being in business for yourself brings the opportunity for profit as well as loss, and this risk/reward aspect can be challenging to manage. We wish all self employed individuals the best of luck and try to offer good education and tools to help.
It's important for a business (you, the consultant) to conduct due diligence on the credit worthiness of potential clients before giving them too much credit. One approach is deposits or getting milestone payments for work performed before you proceed with delivery of a final project. I think we cover getting deposits up front in other blog entries, so feel free to explore our blog.
Thanks again for stopping by! May you always get paid for the work you perform!