Choose the Best Invoice Payment Timeframe

What payment timeframe do you use on your invoices? Many of us are tempted to choose payment timeframes arbitrarily, on the basis of what sounds good the first time we send an invoice, and stick with it as a sort of default. But this set-and-forget attitude can be a problem if the value of your invoices varies, or you work for a range of different client types. While I have a “default” payment timeframe, I try to consider the timeframes I put on every invoice I send to make sure they work for me and for my clients.

Invoice payment timeframes matter to freelancers because they can affect:

  • your cashflow and ability to fund work
  • the progress of the project (if subsequent phases are only started once prior phases have been fully paid for)
  • your client and contractor relationships
  • your invoicing approach for each new project or contract.

The Problem With a “Default” Timeframe

I’ve endured a number of issues that arise when I blindly put a default timeframe on my invoices without giving any thought to the payment value or client.

Firstly, some clients’ accounts teams work to certain pay cycle timeframes, no matter what. Come hell or high water, my invoice won’t be paid any faster than their established timeframes allow. Hassling those clients before that time is up is only annoying, seeing as they can’t do anything to change the situation.

Secondly, if I’m invoicing a client for a small amount, I’m not usually prepared to wait around for the same timeframe I would for a larger amount. Yet my “default” payment timing approach saw small values and big values take the same amount of time to get paid — at a minimum. If a client delayed payment for some reason, I’d find myself waiting even longer for a small payment.

Last of all, if you’ve agreed on a payment timeframe with your client, then send them an invoice that has different payment terms on it, this can give the impression that you lack attention to detail, are forgetful, and/or aren’t really listening to what the client is saying.

For these reasons, it’s important to consider each invoice and client on their own merits before applying a timeframe to the payment.

How to Set an Appropriate Timeframe

The task of setting an appropriate timeframe for payment involves balancing your needs against the conditions your client is working under. My basic process for determining a suitable payment timeframe looks like this.

1. Have I already agreed on payment terms with the client?

Often clients will specify their payment terms up front, perhaps in a formalized work contract, or simply as we discuss the project’s invoicing plan. So my first consideration is: have I agreed on payment timings and invoice payment timeframes with the client? If so, these guide my invoicing approach with that client.

2. Does the client have a regular payment cycle?

Rather than put in a two-week invoice and find out after two weeks that the client has a monthly pay cycle, I prefer to ask my contact about their payment cycle at the outset.

3. What’s the value of the invoice?

If I can, I like to put a short payment timeframe on an invoice for a small amount. It shouldn’t be difficult for a client to meet an invoice for a couple of hundred dollars. Also, I don’t want to be waiting weeks before I have a chance to follow such a small-value invoice up: I want to receive small payments as soon as possible, so I’m not still chasing them up weeks or months down the track.

4. Will payment need to occur before I undertake further work?

Usually I’m happy to continue working while my invoice is being processed and paid. But if the client and I have agreed that each project phase won’t start until I’ve been paid for the prior phase, I’ll tend to put a shorter timeframe on the invoice so that we can keep the project’s momentum going.

5. How soon do I want to start chasing this invoice up?

As someone who’s faced her fair share of non-paying clients, a large aspect of my invoicing approach revolves around working out how soon I’ll be able to chase overdue payments up. This gives me a sense of security: I won’t be waiting a month for payment to become overdue, then trying to track down my client, who’s energy has long since been diverted to other, more pressing tasks.

These are the considerations I use to work out the timeframes I should put on my invoices. For the record, my default timeframe is two weeks, but if I can, I’ll choose a shorter timeframe for smaller amounts (never shorter than a week) and for new clients I haven’t worked with before.

What are your invoicing timeframes? And how did you work them out?

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  • http://www.jasonbatten.com NetNerd85

    First of all, great article. I’ve worked out my own pay cycle to be monthly – so I pay myself every month. The default time frame for work completed to be paid within 10 days. Why 10 days? well it’s longer than a week but less than the dreaded 2 week wait. I work, at the moment for people I know and have done work for before. So there is a lot of security in knowing that they will pay me. This has given me a lot to think about in how I will handle new clients that I will be taking on in the near future. For new clients, I’ll definitely be discussing their payment cycles with them, I honestly never even thought to ask about that before.

  • http://www.sagewing.com Sagewing

    I kind of think that this is a non-issue for companies that have decent cash flow. If you have a cash reserve that is enough to cover any cash flow requirements, then the term doesn’t really make much different. There isn’t any extra convenience or benefit (except a few cents of interest maybe) from getting paid in 5 days rather than 60.

    Once you have cash flow, you can use it to allow to convenience to the client and extend them the standard 30 day term. This makes it easy for them, gives you time to send out an invoice on paper if you want, and have them send in a check (which is free to accept). Granting terms to creditworthy clients makes you look more professional, too. Even if I have a client that needs progress billing (i.e. monthly) it’s still on a 30 day term.

    Rather than trying to work the terms to protect yourself from not getting paid, I would counsel small businesses to learn to manage their cash so that they can truly protect themselves from this kind of problem.

    • http://www.jasonbatten.com NetNerd85

      “There isn’t any extra convenience or benefit (except a few cents of interest maybe) from getting paid in 5 days rather than 60.”

      The article is for freelancers. I’m sure it matters to a lot of freelancers. Ideally people should have 3 months worth of cash in the bank but how often does that really happen? 10-15k is a lot to have just sitting there in the bank if you are a one man band.

  • http://www.sagewing.com Sagewing

    It happens quite often. There are plenty of freelancers who have money in the bank. There are plenty of freelancers who own a house and are saving nicely for retirement.

    I have worked with lots of newer freelancers over the years, and I’ve heard this so many times – ‘how could I possibly accumulate $x as a cash cushion?’.

    But, the most successful professionals/freelancers can save money over time. This goes for web designers as well as photographers, writers, etc.

    One of the most important things you can do to grow a business is to learn to manage your cash. In addition to earning interest on that cash as opposed to paying it, it allows you to take advantage of opportunities that you may have otherwise missed.

    For some, 10 to 15k is ‘a lot to have just sitting there in the bank’. But for others, having only 10-15k in the bank would be stressful.

    It’s absolutely reasonable to accumulate some operating capital over time. Those who don’t are the one who get killed when a single project goes wrong or the economy dumps for a year.

    Warren Buffet said, “when the tide goes out, we see who’s swimming naked’. Keep a cash reserve and don’t swim naked!

  • georgina

    Hey everyone :) Thanks for the interesting comments. And I agree: a cash cushion is crucial! Everyone needs a cash cushion, but everyone also needs to have their invoices paid. And for me, the less time I spend chasing up late payments, the better.

    In my experience, a longer payment timeframe has increased the likelihood that my invoice will be overlooked. This increases the administrative burden of chasing up those invoices, tracking down my contact, re-sending the original invoice, calling again to obtain a payment date, etc.

    For me, the issue isn’t about being broke; it’s about keeping things sweet with my clients and minimising the tedium and frustration of chasing up three-month old payments.

  • http://www.brothercake.com/ brothercake

    This has never come up for me. I never specify time frames, I just assume that everyone expects standard 1-month terms. Most people pay quicker than that, and my one largest client (↔ :-)) always pays at a specific time of the month, so I just make sure I invoice a few days before that.

    From the other side of the fence, I would be quite taken-aback if a freelancer I’d hired insisted on being payed within a specific and shorter period of time. Their personal circumstances are not my concern, and if they lack the cash flow to survive for a month, then they have bigger problems than financial etiquette!

  • http://www.sagewing.com Sagewing

    I couldn’t have said it better. I have worked with a lot of vendors over the years and I’m not all that tolerant of them insisting on payment terms – I’d rather just have them invoice me monthly (at most) on a 30 day term. I don’t want to bother with deposits, and I only get check runs done twice a month. It’s not a big deal to cut a check manually, but those little things add up and I’d rather just have the bookkeeper pay the bills.

    Also, there is correlation (I’m pretty sure) between vendors who demand deposits and are overly concerned with payments and those who are less stable.

    The most successful freelancers I know aren’t that concerned with payment because they are able to cover their receivables without any trouble and they don’t deal with slow-paying or deadbeat clients.

    Vendors that work with us are asked to invoice at the end of each calendar month for all time and materials incurred during the previous month. That’s it. We cut checks every other week. That’s it.

  • georgina

    Sagewing, it’s exactly that kind of regular commitment that most freelancers appreciate!

    One of my clients recently went from an ad hoc, when-you-get-it-to-us-we’ll-pay-it payment timeframe (which, as you’d expect, sometimes lead to payment oversights) to a non-negotiable six-weekly payment timeframe in the name of organization. Unhappily, they still have payment oversights — the only difference from where I’m standing as one of their freelancers is that I now get to wait six weeks before I start to chase up a payment. So, for example, right now I’m chasing up an overdue payment for work I did in March. For me, a two-weekly payment timeframe was a far better bet for getting paid in a reasonable timeframe with these guys.

  • http://www.sagewing.com Sagewing

    I have heard comments like that quite a bit.

    “Clients are more likely to pay if the payment terms are shorter”, etc.

    I don’t believe it :) It makes little sense to me. Unless you are dealing with very disorganized clients, I don’t really get why a 2-week term would be more likely to be paid than a 4-week term. I think that clients who are late payers are going to be late payers regardless of the terms, and if a vendors is constantly ‘chasing down payments’ then they need to take a look at who they are doing business with.

    Perhaps for that one client you mentioned, a 2-week time frame is better. But, do you really want to customize your terms for each client? Isn’t it a better approach to work your way up the food chain and stop dealing with clients who aren’t able to handle a standard 30-day term?