How to invoice for design work – a quick guide

So you have finally done it, you are a freelancer or have set up your own little design agency and you have your first clients with jobs coming in. And now comes the time that a project comes to the point where money is involved, be it just before the first 1/3 of the project is done or towards the end of the project. But what do you need to look out for? Where to go for resources if anything goes wrong?

Continue reading after the break for some strategies on how to invoice for your web design or web development work…

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When to invoice

When to invoice depends entirely how long the project is and how comfortable you and the client feel. Obviously if a project takes only a week or two then you won’t need to worry too much about when to invoice or how to split your invoices. But say for example you are working on a bit of a longer project, say a fully bespoke website, taking about 3 or 4 months. It makes sense agreeing a payment plan then. As a general rule of thumb in the design industry you may want to work on 3 payments – first payment after agreed sitemap, prototype or visuals, second payment after the development is just over half-way, and third payment once the project is going live. That way you ensure you have a somewhat steady money-flow to pay your bills, and it may be easier for the client to put the money through their books as well.

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Keeping on top of things

It is always important to keep on top of everything that involves money. Office rent, electricity and water bills, payments for outsourced work, office supplies, projects and project stages. “Well, since I work from home I won’t have to worry about some of those things”, you may say. Wrong, even that is cost. You pay rent, you pay electricity (or pay your parents / spouse for paying the bills for you), but it is cost. So keep track of everything, at the end of the day you want to know how much you make in a month, right?
Aside from costs, it is important you also keep track of project dates, when does what need to be agreed on or signed off, when is the preliminary live-date? Is the client going on holiday?
Keeping tracks can be done in a number of ways, be it a notepad, excel sheets, or fully fledged accounting software or project tools – as long as you can keep track and not lose the notes you are good to go.

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Payment terms – and agreeing to them

So now you know roughly what your outgoings are and how much you will be charging for your project or project stages, now is the time to formally agree to your payment terms. Standard payment terms are usually 30 days (though some companies I worked for prefer 60 days) after project delivery or after each key stage, meaning the client has 30/60 days to pay you after that date before you will charge interest. The current interest rate is 13% (which is calculated by 8% late payment interest rate plus 5% reference rate from the Late Payment of Commercial Debts (Interest) Act 1998).

If you do not want to go down the route of a formal contract then at least make sure to write an email to your client outlining the project stages, payment stages and late payment terms and get the client to respond to the email that he / she is agreeing to it! If there is no paper trail then you will have a hard time in court (should it ever come to that).

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How would you like to get paid?

There are 3 options on how to get paid, though only 2 are advisable:

1. Paypal – this is probably the most preferred option by smaller agencies or upcoming freelancers, but also the least advised one, simply because it is expensive: if you don’t have a merchants account you lose around 5% of your money in fees, and even if you have a merchants account, you’ll still lose up to 4% by using this service. I really recommend staying away from this option
2. Cheque – preferred option for freelancers and smaller businesses. All you need to do is give them your name or company name and to post it to you. It is reasonably quick and easy, and all you need to do is walk into your bank and pay it in.
3. BACS – my preferred option: BACS stands for Bankers’ Automated Clearing Services and means direct bank transfer. This option is also preferred by many medium-to-large sized businesses and is becoming more popular with smaller businesses as all they need to do is inform the accountant to pay X to person Y and not having to worry about it any more.

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Your first invoice

Whichever route you take (pay in one sum or pay in stages), you will need to write a formal invoice. Each invoice should have an invoice reference number, the postal address of the client, your postal address and email address, a job description, the amount with a VAT breakdown and – if you are a limited company – the registered office address, company and VAT number. The FSA has some nice information about invoices. You will also need to add a bit of spiel on how you would like to get paid, such as bank account or name for the cheque.

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Late payments

Unfortunately you will have one of those clients sooner or later who will not pay on time. Keeping a cool head is important, after all it could just be an omission from the accountant. A good approach is calling the client after 7 days of the invoice being due to check if everything is okay and remind the client that there is an invoice due. If payments are a week late then I usually tend to ignore late charges, as it shows the client that errors are only human and you’re still providing a good service.
When it comes to late payments things will change a bit more drastically. If payment is over a month late when you should send a repeat invoice, together with a reminder that the client will be charged interest. Month two is where it gets interesting, if the client still has not paid you can also demand a debt-recovery charge (usually 5-10% of the outstanding fee). Either way, make sure that you word this carefully, a threatening tone can backfire! Keep calm, write professionally. Neither of you want to make this legal at this stage.

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Legal actions

Month three has arrived, and you still haven’t been paid? Then it is time for you to go legal. Send the client a repeat statement and invoice with interest and debt-recovery fee, and threaten with legal action via the small claims court. Send the letter or email, and call a day after the email / letter would have been received (if you write a letter, make sure you use recorded delivery as proof) and speak to your client about this. Give them 10-14 days, then call again. If there is still no money in your account you will need to take legal action.
In any case, you will now need to plan out your claim. The Claims information on the HMCS website will guide you through the proceedings and required documents and give you advice on how to proceed, what you need, and who to speak to if you have any questions.

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Getting your money at long last

In most cases you have the proper paperwork and paper/email trail and you will win the case. Well done! Now it is time to speak to a debt collections agency (after the court case you will sometimes be given a recommended agency by a clerk, or you can go to the HMCS website and find out more about debt collectors in your area) who will take matters into their hand to make sure they get you your money and the court fees – and of course their share. Don’t worry about their costs, they will get that from the client. And you’re done!

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Final words

In 99% of all cases invoicing is a pretty straightforward thing, clients are usually very good when it comes to paying their debts and in my career I only came across 5 clients who were a bit of a pain to deal with. Always remember, if anything goes wrong just keep calm, stay professional and make sure you have your bases covered: the client agreed to the work, you outlined the payment information and terms and you have done as per agreement. No one wants to go through courts, and clients will pay reasonably quickly the moment you mention ‘late payments’ and ‘legal proceedings’. 😉