Discussing Fees with Clients

There’s nothing more awkward than having the money conversation with clients. Generating ideas is exciting, building relationships exhilarating, but talking terms often feels grubby. Yet if we don’t agree numbers early on, we can waste time discussing projects that aren’t financially feasible. In this post, I’ll share three tips on discussing money with clients.

1 Make your prices visible

You can’t assume your potential client has done any homework on likely costs. Years ago, when I was a web developer, I spent ages putting together a proposal for an e-commerce website, only to discover that the business owner had a budget of £20. Yes, just one zero. Even if your quotes vary enormously, a range will give a sense of the cost. You could outline a typical scenario with the likely fee. This at least provides an anchor point. Otherwise, unhelpful assumptions can arise.

Not advertising your prices could also make potential customers imagine you’re too expensive for them – especially if you have swish branding and a slick web presence. They won’t necessarily call or email to find out.

2. Have the money conversation early

Get the numbers out of the way. This is especially important if you’re in a ‘caring’ role, such as a coach or therapist. Potential clients know you want to help them, so can sometimes think you’re prepared to do so on a voluntary basis. Explain at the beginning, “this is how I work, this is what I charge …” Then you can talk more about the client’s project or challenges and conclude by emphasising your value, rather than your hourly rate.

3. Don’t haggle

As I said in the previous tip, you need to be clear on your value, i.e the difference you’ll make to this person or company. It’s not up to you to be affordable – your potential client needs to decide whether the problem you’re solving is a priority for them. Perhaps they are keen to get their logo redesigned, but a new laptop is more urgent this month. They’ll be back once they’ve got the money. Accepting a lower fee means you feel resentful, and it sets an unhelpful precedent. If you start low, it’s hard to charge more in future.

You’re working hard, so you deserve to:

  • Earn a decent income
  • Invest in personal and professional development
  • Get recognition for your skills & experience

In my next post, I’ll help you work out how much to charge.

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How to Get Paid as a Freelancer

Financial uncertainty is perhaps the biggest headache for freelancers. Not only are we constantly seeking new clients and revenue streams, but also there’s a fear we won’t get paid for that big project. Managing cashflow becomes an art form and our wellbeing can suffer.

Having freelanced for the last 20 years, I’ve developed some tactics for reducing the risk of non-payment.

1. Be clear on your payment terms

When taking on a new client, explain your payment terms in writing. Ideally, you’ll have a least a brief contract, but an email will suffice. The standard is usually 30 days for companies. Some will only make payment runs once a month, so there’s no chance you’ll get paid any quicker.

If you’re working with individuals, it’s reasonable to request faster payment. After all, they should have the funds when they booked you. I stipulate 10 days, although most people pay me within 24 hours.

2. Charge interest on late payments

Thanks to the Late Payment of Commercial Debts (Interest) Act 1998, you can actually levy a financial penalty for tardy clients. This is 8%, plus the Bank of England base rate (currently 0.75%). Here’s how it would work if you’re owed £1,000:

  • the annual statutory interest on this would be £87.50 (1,000 x 0.0875 = £87.50)
  • divide £87.50 by 365 to get the daily interest: 24p a day (87.5 / 365 = 0.24)
  • after 50 days this would be £12.00 (50 x 0.24 = 12)

You can also charge a fixed fee to cover the cost of debt recovery. The amount depends on the size of debt:

Amount of debt What you can charge
Up to £999.99 £40
£1,000 to £9,999.99 £70
£10,000 or more £100

Make sure you include both the terms and the penalty on your invoice. To claim the interest and fee, you’d need to issue a new invoice for the adjusted amount.

Here’s the wording I use on my invoices for larger clients:

My payment terms are 30 days. Please be aware that according to the Late Payment of Commercial Debts (Interest) Act 1998, freelancers are entitled to claim a £40.00 late fee upon non-payment of debts after the stated period. At this point, a new invoice will be submitted which includes the fee. If payment of the revised invoice is not received within a further 30 days, additional interest will be added to the overdue account. This is charged at a statutory rate of 8% plus the Bank of England base rate of 0.75%, totalling 8.75%. Parties cannot contract out of the Act’s provisions.” (Based partly on a version generously shared by @mj_sprackland on Twitter.)

This worked a treat on a client a few years ago. They’d always been slow to pay, meaning I had to nudge them repeatedly. The threat of an ever-increasing invoice turned them into reformed characters.

Of course, you need to follow through with the penalty, else this is no more than an idle threat.

3. Get set up on the client’s finance system

If you’re working with large companies, they’ll probably need to set you up on their finance system before you can get paid. I have no idea why, but this seems to take weeks. They’ll need details from you and might also ask you to complete a tax questionnaire (this is to absolve them from any responsibility for your tax affairs). Make sure you’ve done all this before you start work, otherwise it’ll hold up payment of your invoice. Wherever possible, request a purchase order. And find out who’s responsible for you getting paid – this might not be the person who commissioned your services.

4. Check the financial background of your client

If your prospective client is a limited company, they’re legally required to submit accounts to Companies House. You can check online to see whether they’re in financial difficulty. For example, it’s a red flag if their accounts aren’t up-to-date. Struggling companies tend to just keep going until suddenly they don’t have the money for payroll, then the staff scarper. Suppliers aren’t usually a priority.

Consider how much risk you want to take, especially if it’s a big project. You could ask for at least some of the money upfront – a good idea anyway if you need to buy materials or will incur other expenses.

I learned this the hard way. Back in the 90s, I worked like the clappers on a website, including all over Easter weekend. As an urgent project, I was charging a premium and had many plans for how I was going to spend the money. When an envelope came through the door, I thought it was a cheque (this was 20 years ago). Sadly, it was a letter from the liquidators. Instead of £2,000, I’d be receiving just £16. I still feel quite queasy now.

Had I poked about online, I’d have discovered that the business was carrying massive debts and was unlikely to keep going. My contact there – with whom I’d enjoyed a very friendly relationship – gave absolutely no hint. Boo.

So, contemplate the risks of any project, particularly in the current economic climate. A client’s worth precisely nothing if they can’t pay you.

5. Be persistent

Actually, be annoying. This is your livelihood, so don’t make it easy for defaulting clients to ignore you. A company in trouble will try to delay payment as much as possible. They’re also likely to prioritise creditors who keep pestering them. Enforce your terms and be formal. You might use a process like this:

  • Letter 1 – reminder of outstanding debt
  • Letter 2 – reminder of outstanding debt, suspension of services, timeline for applying financial penalties
  • Letter 3 – new invoice, notice of intention to hire debt recovery agency

Conclusion

We’d like to think that we do a good job, then we get paid. Unfortunately, it doesn’t always work that way. I experience problems very occasionally these days, and it’s usually due to cumbersome systems in large organisations. In these situations, I request payment upfront, charge a higher fee, or don’t work with the client again. I’ve dropped a few clients along the way, but this has freed up time to find better clients.

You deserve to work for people who respect your time and expertise. Good luck with getting paid.

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What should I do with an inheritance?

If you’re expecting a large windfall, you might be tempted to ask a friend what to do with it. They’ll almost certainly respond “Give it to me … ha ha!” – the laughter belying their seriousness. Most of us are used to living from month to month and have no experience of handling a significant lump sum. Unfortunately, though, it’s not a situation that elicits much sympathy. “A nice problem to have,” is one of the more benign responses you can expect.

Sudden wealth can be stressful.  A common reaction is to solve the problem by spending it as quickly as possible. The money is gone and we’re returned to the familiar situation of just getting by. An article in The Conversation suggested the average person who receives an inheritance quickly loses half of it through poor decisions. While you’ll certainly want to enjoy yourself with some of the money, don’t neglect the opportunity to make it serve you in the longer term.

In this post, I’ll help you think through the options for making the most of an inheritance, and also point out a few potential pitfalls.

Before you start …

Have you actually received the money? Most estates in the UK go through a system called probate. The Government tots up the deceased’s assets and liabilities, then deducts Inheritance Tax (IHT) from anything left over. Currently, IHT is levied at 40% on estates valued over £325,000. There are exemptions on main residential properties and for spouses, so please read my Inheritance Tax post for more details.

Uncle Norman might’ve left you £100,000, but this could drop to £60,000, depending on how he organised his finances. And if he also gave you money within the last seven years of his life, you could be liable for additional IHT tax, too.

So, don’t resign from your job until you know exactly how much you’ll receive.

Now let’s look at five ways to spend your inheritance.

1. Pump up your pension

Before you help anyone else, make sure you’ve provided for your own future. Check how much money you’ve got in your pension pot and what you can expect to receive from the state pension. Adding a lump sum or increasing your monthly contribution now could ensure a comfortable retirement.

You can only pay a maximum of £40,000 or the equivalent of your salary (whichever is lower) into a pension each year. You should take into account any existing contributions when calculating how much you can invest. For example, if you earn £35,000pa and a total of 10% is contributed through a workplace pension, you could put another £31,500 into a pension scheme.1

There’s also a lifetime limit on how much you can invest in your pension. For the 2019/20 tax year, this is £1,055,000. That might sound a lot, but it’s easy to exceed if you’re a high earner with a generous employer.

2. Give it away

Perhaps you have enough money already and do want to help that importunate friend. Or you’d like to give your children a financial buffer. Again, you need to consider inheritance tax. There are limits on how much you can give away each year without creating potential tax liabilities for your beneficiaries. If you have a large sum to distribute, it’s worth consulting a tax accountant to get expert advice. Also consider whether your beneficiaries know what to do with a lump sum. Will they just blow it? Might a monthly allowance be better?

There’s no IHT payable on charitable donations, so they’ll get the maximum benefit from any largesse.

3. Invest in an ISA

Often, people aren’t sure what to do with an inheritance and just stick it in a cash savings account. Although this is better than keeping it under the mattress, it isn’t a good long-term solution. Not only will your money shrink with inflation, but you might also have to pay tax on the tiny amount of interest earned.

If your lump sum is more than £40,000, you should consider an ISA. You can save up to £20,000 in an ISA each year without paying any tax and there’s no overall limit on how much you can accumulate. There are currently six types of ISA:

Cash is generally a good option if you need to access the money within the next five years. In this situation, you’re prioritising security over growth. Anyone wanting a decent long-term return on their investment should investigate a stocks and shares ISA. This is riskier – your money is exposed to the vagaries of the stock market – but it offers some protection from inflation.

4. Buy a bigger house and live in the suburbs

For most of us, the overwhelming temptation is to buy a bigger or swankier house. Remember, though, that a bigger house could mean higher running costs. Have you saved enough in your ISA to cover those future commitments? And moving to a leafy location might involve a longer commute and associated costs. Is there enough cash to cover all the implications of a larger property?

5. Pay off your mortgage

While a Georgian rectory could be fun, a mortgage-free life might be even better. Paying off your existing debts (and not acquiring any more) gives you additional options. Perhaps you could retire early, reduce your hours at work, or retrain to do something more fulfilling. Mortgages are often described as ‘good debt’, but they’re still debt. Reducing your burden gives you freedom.

Check your mortgage agreement carefully. Depending on your terms, some lenders only allow you to overpay by a maximum of 10% each year. Work out the impact of any penalties and see whether it’s worth drip-feeding the money instead of making a lump sum payment.

Conclusion

Of course, what you do depends on the size of your inheritance and your personal circumstances. Allow yourself time to ponder what’s right for you. Just because this was an unexpected windfall, doesn’t mean you should just spend, spend, spend. It’s unlikely you’ll get impartial advice from friends (and definitely not from family), so look for neutral sources of support. The right decision could mean a secure financial future in which that inheritance works hard for you.

This post is for information only and does not constitute financial advice.

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