Invoicing 101: A Comprehensive Guide for Freelancers

We all know that walking-on-air feeling of payday. It’s powerful, and for a good reason: Getting paid can not only help relieve financial stress, it also can release the feel-good neurotransmitter dopamine in the brain. 

Beyond feeling good, getting paid is vital to running your business as a freelancer. That's where invoicing comes in: It enables you to be compensated for the hard work and time you've invested in your projects. 

Although getting paid feels great (thanks to that dopamine rush), many freelancers dread invoicing. It can be complex and time-consuming, especially if you're new to the process. As a result, many self-employed people find themselves struggling to manage their invoices, leading to delays in payment, misunderstandings with clients, and even loss of revenue. 

In fact, in one survey, 74% of freelancers said they are not getting paid on time. When you consider these respondents earn most of their income from 1099 work, delays make it especially hard to manage small business finances and cash flow.

We'll dive into the world of freelancer invoicing and cover everything from essential elements for an invoice to setting up an invoicing system and choosing the right software. But first, let’s start with the basics:

What’s an invoice?

An invoice is basically a bill: It’s a request for payment for services rendered. Invoicing enables you to provide a record of the work you've done and the amount you're owed for that work. 

Invoices also provide important information in writing for both you and your clients, such as payment terms, due dates, and accepted payment methods. By using an invoice, you can help ensure you're paid accurately and on time, with a record of all your transactions. 

Additionally, professional-looking invoices can help you build credibility with your clients, express your brand, and set you apart from other freelancers with less detailed or nonexistent invoices. 

10 Essential Elements of an Invoice

Clear communication is everything when it comes to managing client relationships, and that's where a comprehensive invoice can save you time and headaches as a freelancer. An invoice ensures that you and your client have a clear understanding of the work done and the amount due, which can help prevent disputes and ensure you get paid promptly. 

So what are the essential elements of an invoice? Here are 10 components we recommend including in your invoice:

• Invoice date: The date the invoice is issued.

• Invoice number: A unique identifier for the invoice that can help with tracking and organization.

• Business information: Your business name, address, and contact information.

• Customer information: Your customer's name, address, and contact information.

• Description of goods or services: The items or services you provided. 

• Quantity of goods or services: How many items or services are sold.

• Unit price, fee, or rate: How much you charge per item or unit of time. 

• Taxes or fees: Any applicable extras that need to be included in the total price.

• Total price: The cost when you multiply the quantity by unit price and add in taxes and fees.

• Payment terms: Due date for payment, accepted payment methods, and any late payment fees or interest.

Adding a personal note to your invoices saying something like “Thank you for your business!” can also help build rapport with your clients.

6 Tips for Freelance Invoicing

Now that we’ve covered some of the building blocks of invoicing, it’s time to start thinking about how it all comes together, gets to your client, and results in a payment. Here are six best practices to smooth that process:

• Be prompt: It can be tempting to put off invoicing until tomorrow, but don’t! Send your invoices promptly and consistently—as soon as the work is complete. If you work on a regular schedule, such as bi-weekly or monthly, you can set up recurring invoices to make this a bit easier.

• Be specific: Include details about the work you've done, such as project description, job number, hours worked, the rate charged, and any applicable taxes. This will help avoid misunderstandings and disputes about what was included in the project.

• Be organized: Create a clear and consistent invoicing system so you aren't left scrambling to remember whether you charged your client two months ago. This can be as simple as setting up a process and sticking to it, and it can include using templates, tools for tracking payments, and reminders for when payments are due.

• Establish clear payment terms: Specify the payment terms in your invoice, such as the due date, accepted payment methods, and any late payment fees or interest. This will help set expectations with your clients and motivate them to pay on time.

• Follow up professionally: If a payment is overdue, follow up with your client professionally and politely. Send reminders, and escalate your approach if necessary, but always maintain a positive and courteous tone.

• Consider automation: You don’t need to do everything by hand. Many invoicing software options nowadays help streamline your process. Look for one that fits your budget and includes features like invoicing templates, time tracking, and payment processing.

Manual Invoicing vs. Invoicing Software: Which Is Right For You?

Which is right for you? Both options have benefits and drawbacks, so let’s look at the pros and cons.

Manual Invoicing

If you choose the manual route, it involves creating invoices individually, often using a free template in a program like Google Docs or Microsoft Word. While this approach may seem straightforward, there are some pros and cons you should consider.

Pros of manual invoicing:

• Greater control and customization: With manual invoices, especially if you're designing them yourself, you have complete control over the format and content so that they can be tailored to your brand and business.

• Quick and cheap: There are free invoice templates online that you can download and fill out in a matter of minutes. If you're just starting out or have a small number of clients, manual invoicing is likely more cost-effective than investing in invoicing software or a customer relationship management (CRM) tool.

• No learning curve: Unlike invoicing software which may require some getting used to, manual invoicing is straightforward and requires no special skills or training.

Cons of manual invoicing:

• Time-consuming: Creating and sending manual invoices can eat up valuable time. This is especially true if you have a lot of clients or complex invoices.

• Higher risk of errors: We're all human, and typos and bad math can make their way into our work. Unfortunately, invoice errors can result in payment delays or client disputes.

• Limited functionality: With manual invoices, you won't get some valuable bells and whistles that come with software, such as automatically sending reminders or tracking payments.

Invoicing Software

With invoicing software, you’ll get a more streamlined and efficient way of invoicing that automates many manual tasks like data entry, calculations, and payment reminders. 

Pros of Invoicing Software:

• Time savings: Software can do a lot of the hard or annoying work for you, like data entry, crunching numbers, and sending invoices. That way, you can spend time on higher-impact business parts.

• Greater accuracy: Invoicing software reduces the risk of errors, such as typos or incorrect calculations, ensuring that your invoices are accurate and professional.

• Enhanced functionality: Additional features like time tracking, estimate creation, and report generation often come with invoicing software. If those are useful to you, they may be worth the cost of the software.

Cons of Invoicing Software:

• Cost: Invoicing software usually requires a subscription payment or a one-time fee. Every penny counts for small businesses and freelancers, especially those just starting out, so the cost may not be worth it. However, there are online invoice generators that freelancers can use to create fast, beautiful, and free invoices. 

• Learning curve: There can be a paradox with software where it’s meant to save you time, but it requires so much commitment to learn how to use it that you don’t actually reap the time savings. Look for user-friendly software that matches your level of tech-savviness.

Ultimately, the decision between manual invoicing and invoicing software will depend on what you need: Few clients? Want more control? Price Sensitive? Manual invoicing may be the way to go. Lots of clients? Complex invoices? Short on time? Take a look at invoicing software. Whichever approach you choose, it's important to ensure that your invoices are accurate, complete, and make you look your best.

Invoicing That Fits Your Workflow

Invoicing is an essential part of freelance work, and it's important to have an effective system in place. By setting clear payment terms, sending invoices promptly, and following up on overdue payments professionally, you can ensure that you get paid fairly and promptly for your work. Choosing the right invoicing software and keeping accurate records for tax purposes can also make your invoicing process more efficient. 

When you sign up for a Found account, you’ll get access to Found’s comprehensive invoicing features. You’ll be able to send professional, customized invoices and estimates, customize your invoices with your logo and colors, and get paid faster with a range of payment options. You’ll also get access to our suite of business tools to help you streamline your banking, bookkeeping, and taxes. Sign up for free today.

FAQs about Invoicing

Can I charge late fees on overdue freelance invoices?

Yes, you can charge late fees on overdue freelance invoices, but it's important to approach this practice carefully. First, you’ll want to clearly state your late fee policy in your contract and on the invoice itself. Second, you’ll need to make sure your late fee policy complies with local laws and regulations, and be consistent in applying late fees to all clients to maintain fairness. It's important to use late fees as a deterrent to late payments, not as a primary source of income. Many freelancers consider implementing a grace period before applying late fees, or be wiling to waive late fees for first-time offenders or long-standing clients. A balanced approach can help encourage timely payments while maintaining good client relationships–both of which are important for growing your business!

How can I ensure I get paid on time?

Getting paid on time is a combination of clear communication and setting up an efficient invoicing process for your business. Send invoices promptly and state your terms clearly. Offering multiple payment options will also likely increase the speed in which you get paid. You’ll want to set up payment reminders, and follow up on late payments professionally. 

What are the best payment terms for invoices?

The best payment terms for invoices will likely vary depending on your business needs and industry standards. A few common payments terms are:

• "Due upon receipt" is pretty self-explanatory. You’ll get paid immediately.

• "Net 15/30/60": These terms specify that payment due in 15, 30, or 60 days.

• "2/10 Net 30": These terms state a 2% discount for early payment

• “50% upfront, 50% on completion”: Commonly used for larger projects

• Monthly retainers are often used for ongoing work

When choosing your terms, consider your cash flow needs, what’s normal for your industry, and client relationships. Shorter payment terms can improve cash flow, while longer terms might be more attractive to some clients. Whatever terms you choose, you’ll want to communicate it clearly with your clients in your contract. 

This material has been prepared for informational purposes only.