Who doesn’t love that feeling of sending out a delicious invoice for work well done? Those dollar signs are your best friends! But is there something on that invoice that’s doing you more harm than good? If it’s a net 30 invoice, there might be.
Most freelancers create their first contracts and invoices without much idea of what they’re doing (myself included). As a result, many choose net 30 payment terms because they know net 30 is common in the business world so they shrug and say, “This’ll work” (again, guilty). Well, when you learn better, you do better, and this is where you learn why net 30 isn’t a freelancer’s friend.
What is Net 30 Payment Terms?
First, so we’re all on the same page, “net 30” payment terms means the payment is due 30 calendar days after you send the invoice. Essentially, you extend credit interest free for the client for a month.
Why Freelancers Should Avoid Net 30 Agreements
Simply put, 30 days is a long time before the client needs to pay the invoice. It might work for more structured and established companies but that timeline presents several problems for freelancers.
Cash Flow Issues
Net 30 is common in B2B sales because traditional companies are structured to have reserves available. They typically operate on more fluid income or payment schedules after delivering their goods or services.
As a freelance business, though, you’re running a household. Freelancers tend to have tighter schedules of bills to pay with fewer reserves. Even an early payment that arrives three weeks after you dedicate your valuable time to a project can be too late depending on your bills’ due dates.
Time for Problems to Arise
A lot can happen in 30 days. Your client’s business can take a downturn so they can no longer pay what they owe you. The client could simply decide they no longer like the price they agreed to and choose to play hardball. Sure, you should win out in the end if there’s a signed contract, but no one wants the added headache regardless of how it ends up.
The shorter timespan there is between making the agreement and requiring payment, the less can go wrong between that time. This includes the time between your invoice and the payment’s due date.
Long Delay for Repercussions
I like to expect the best from people, but we all know some clients enter agreements with no intention of paying. We all hope to spot red flags and weed out those scammers instead of working for them but it’s always a possibility.
If your contract has net 30 payment terms, you can’t even begin taking action to get the money until that month is over. That includes sending debts to collections and charging interest on overdue amounts. Sometimes you could sue them in small claims court before those 30 days but only if they’ve explicitly stated that they won’t pay you.
Remember: Payment Terms are Variable
This is something few people talk about so it’s worth stating. You don’t have to give the same payment terms to every client.
We all have come clients who consistently pay right away and others we don’t trust so much. It’s well within your rights to offer net 14 or net 20 invoicing payment terms to trustworthy clients with shorter timeframes to the sketchier few. After all, payment terms essentially offer short term credit, so there’s no need to give that credit to someone who doesn’t pay on time.
Standing Up for Your Business
In all honesty, for many freelancers, the toughest part when they start out is learning how to advocate for themselves. It’s not an easy skill, and even after years of solopreneurship. Many freelancers still struggle. It becomes easier with practice but remember this: you’d expect to be paid on time by an employer, so don’t accept any less from clients either. Choosing your payment terms well is an important part of protecting your budding business’s financial stability.