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A guide to planning for unsteady pay

Illustration by

James Merritt

September 9, 2021

There are many perks that come with freelancing for a living, such as having more control of your time, being your own boss and the freedom to work how and when you want. For many, these are some of the benefits that make freelancing worth it, because let’s face it, it’s not easy. 

In fact, you’ll probably work much harder as a freelancer than you would if you were employed by someone else - but working hard for yourself is much more rewarding than letting someone else reap the fruits of your labour.

Another key benefit to freelancing is being in a position to take more control of your income because the harder you work, the more money you’ll make. However, as any freelancer will tell you, having ‘more control’ of your income could, at times, feel as though you have no control at all... If you’ve ever found yourself looking for more work or chasing invoices, then you’ll know what I mean.

The financial strain that many freelancers face can be worsened if you go months at a time without getting paid, which can be the case for many who are new to this way of life. On the other hand, you have people whose nature of work simply means they get paid irregularly, such as actors and authors - though they’re likely to be months worth of work, all at once. Meanwhile, those new to the game could still be building their client base, which takes time. 

However, no matter where you are in your freelance career, you’re undoubtedly familiar with the feast or famine lifestyle that comes with it, so to help lighten the load, we’ve come up with a list of tips and tricks to help you manage your money.

1) Find your bottom line

Your bottom line is the minimum amount of money you need to make in order to sustain your current lifestyle and knowing where the line falls is crucial to managing your finances. To work it out, simply add up all your monthly expenses, like rent, food and your phone bill.

Knowing the minimum amount of money you can get away with earning can be really helpful in prioritising your spending when you’ve got little to no work. This figure should also be the foundation of any budget you put in place, so if you’re not expecting any income for a few months, you’ll be in a better position to make your money last.

2) Have a contingency fund

A contingency fund is like your bank account buffer. It’s the safety net that will keep you going when you’re struggling to either find work or simply waiting for your next invoice to be paid.

Your contingency fund should be big enough to cover your basic expenses for two to three months. This means that if anything goes wrong, which results in you not getting paid when you expect, you’ve got something to fall back on.  

This is where your bottom line figure can be helpful. For example, if you know you need £1,000 to cover all your monthly expenses then you know you’ll need at least £2,000–£3,000 set aside for a rainy day (or month). If you don’t have this money set aside now, then you can aim to build on what savings you do have as you continue to earn from freelancing.

3) Make a budget

It sounds obvious, but budgeting is an important step to ensuring that you can pay your bills and afford to eat. This is even more important to those that get paid big lump sums every few months. I expect that being paid £12,000 all at once would feel akin to winning the lottery, but if you have to make that last six months or more, it’s not actually that much money.

What some people decide to do in this position is ‘lock’ the lump sum away in a savings account and ‘pay’ themselves every month as though they were employed full-time, so £12,000 once every 6 months becomes £2,000 every month.

It’s also important not to forget the taxman, the last thing you want is to be lumped with a tax bill you can’t afford to pay. As a rule of thumb, it’s worth putting aside 20% of every penny you make.

4) Set payment terms

Whether you’ve got multiple clients that pay you a little every other week or one client that pays you a lot once every few months, there’s nothing worse than not getting paid when you’re expecting to. 

For non-freelancers, it can be difficult to appreciate the concept of not getting paid on time but when you live invoice to invoice, late payments are as frustrating as they are debilitating. 

The good news is, you’re not powerless and it is possible to avoid being paid late by your clients, thanks to the power of fear and a little thing called the Late Payment of Commercial Debt (Interest) Act 1998. 

Without boring you with the details, here are a few paragraphs that you’ll find on the bottom of every invoice I send out - and I suggest you do the same:

 Please note that in accordance with the Late Payment of Commercial Debt (Interest) Act 1998:

 A fixed sum (£40 for debts up to £1,000 and £70 for debts over £1,000) for the cost of recovering a late commercial payment will become due in the event that this invoice is not paid on or before the due date. A revised invoice including this late payment fee will be issued in the event this invoice becomes overdue; and

 Starting from the day following the due date on this invoice, late payment interest will start accruing on the overdue payment at 8.1%, being the statutory rate of 8% plus the Bank of England base rate, currently 0.1%. Invoices will be updated weekly to reflect the accrued interest.

Since adding this to my invoices, I am very, very rarely paid later than 30 days and in the unlikely scenario that I do need to chase a client, they usually pay me on the day.

It’s also worth knowing that 30 days are legally considered standard payment terms, even when it’s not directly stated on an invoice. This means that if you do ever need to chase a client, and they’re being particularly difficult, you can quote the Late Payment Act and scare them into paying you. 

You could even go a step further, as I have done, and say that if they don’t pay by a certain date, you’ll issue an updated invoice to reflect the interest accrued in accordance with the act. You can even use this handy late payment calculator to figure out how much you can legally adjust the invoice by.

5) Side hustle

Freelancers are natural-born hustlers, so if after everything else you’re still struggling to make ends meet while you wait for your next invoice to be paid, you can always look for another gig to help tide you over. 

This might sound like a horrible idea to some, but I’m not suggesting you go and do something you hate for minimum wage, I’m proposing that you do something you enjoy, that pays.

For instance, I always loved working behind a bar and there’s been more than one occasion that I’ve considered calling into my nearest pub to see if they have any spare shifts going. Even two shifts a week could pay out around £500 per month. This might not be for everyone, but if you’re between a rock and a hard place it may be worth considering.

Are you trying to find more work?

Or are you trying to organise your payments, or make contracts for your clients? Whatever you need to do as a freelancer, UnderPinned can help.

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