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Strategies to improve cash flow for freelancers

Leon Cordier
December 3, 2021

Making sure that you have money in your pocket should be priorities one, two, and three when you work as a freelancer. The problem is that all the responsibility for dealing with customers, sending invoices, chasing down payments, managing budgets, and more falls on your shoulders.For many people, being their own boss is the main benefit of freelance work, but it can be daunting for others. Inconsistent clients, irregular pay, and slow periods are all things that can derail your finances. That's why this guide will give you the tips necessary to manage and improve your cash flow.

How important is cash flow for a freelancer?

Cash flow is the movement of money in and out of your company or wallet. When you’re self-employed, you often don’t have the luxury of regular pay. That means you need to strategize ways to keep more money coming in than out. Failing to do so will see your business struggle to stay afloat.Managing your cash flow will ensure:

  • Growing your business
  • Staying out of debt
  • Balancing your budget

The best cash flow management tips for freelancers

Use contracts wisely

Using your contract wisely means using it to your advantage. It’s essential to go over the crucial details of a contract to work out important details and negotiate any changes that work in your interests. You should make sure that the contract is mutually benefitting so that you get:

  • fair pay
  • reasonable expectations about the work you’re doing
  • enough time to deliver your services
  • good payment terms

You should never feel like you are chained to your contract. Instead, work with your client to draw a contract that both of you feel good about. The contract should be like a map, detailing the important bits of information and avoiding any sort of mistakes or obstacles. It’s always easier to negotiate a contract before the ink is put on paper, so use that time wisely.

Set aside money for your estimated taxes

It’s important to always set aside money as a freelancer to cover the taxes you will have to pay. Estimated taxes are paid quarterly, and because you are self-employed, you will have to pay a little extra. The tax you’ll be paying is technically tied to Medicare and Social security, something that your employer would split with you 50/50, but since you employ yourself, you pay the whole thing.To cover these costs, you should set aside between 20%-30% of your income at the end of every month or pay period in a separate account that you can use to pay these taxes. Also, there are ways to possibly lessen your tax burden by claiming deductibles for running your own business. This includes things like office supplies and travel expenses.

Always keep an eye on cash flow

It’s important to always keep an eye on your cash flow when you’re self-employed. Besides obvious tips like budgeting correctly and watching your spending, one way to manage your cash flow is by setting up a cash flow forecast. A cash flow forecast is a system that shows you the money that’s flowing in and out of your business.You can use it:

  • to identify your financial position
  • as a reference for loan applications
  • To keep track of your payment schedule.

To do this, you’ll need to keep track of your income streams like sales and rent, and you’ll track your expenditure like material costs and potential travel costs. After you take these into account, then you stay on top of it by constantly responding to changes in your business and adding them to the forecast. It’s a great way to track your finances and plan for the future.

Plan ahead for periods of low income

As we discussed before, one of the drawbacks of being a freelancer is inconsistent pay. It’s going to happen at some point, so it’s best to have a solution for it before it happens. Save a portion of every bit of income that you earn so that you can create a buffer.One common bit of advice is to create a buffer of 3 months, meaning having enough money set aside to pay for your expenses for 3 months. These funds should keep you afloat during lulls in your business; however, it may be essential to map out potential expenses. If need be, consider cutting expenses that aren’t essential. Do your best to keep up with important payments and find ways to improve your revenue streams.

Accurately record all income & expenditure

Accurately recording your income and expenditure is one of the most important things you can do as a freelancer. It is mandatory in some instances, such as paying your taxes, but it’s vital for keeping track of your finances and cash flow. You should constantly update your numbers, tracking changes in your income flow as frequently as possible so that you can stay on top of any potential problems.

Establish reasonable payment terms

Establishing sensible payment terms is a key ingredient in getting paid on time. A common issue that springs up for freelancers is that they find themselves short on cash in the middle of their invoice terms.Imagine having an unexpected expense pop up, but you can’t expect to be paid for another week. That is why you should find and develop reasonable payment terms that see you paid as quickly as possible. Frequently, freelancers have to deal with payment terms of 30, 45, and even 60 days, so negotiating shorter terms is a good step to alleviate these concerns.Other methods you can use include offering discounts on the price if clients pay early or asking for a down payment before work begins. Be sure to clearly state your expectations are and communicate them with your customers.Also, keep track of important information regarding your invoices like:

  • who the client is
  • the price
  • the payment terms
  • project details
  • whether they have paid or not.

Analyze data frequently

It’s not just important to record and track your finances. You must also analyze your financial data frequently. Digging into your financial records gives you the ability to find shortfalls in your income, unnecessary expenditures, and planning for future business activities. Analyzing your data will allow you to stop ineffective programs, invest more into beneficial ones, and become more surgical when using your money and time.When it’s time to do so, send your invoices early. ALWAYS! There are no real benefits to delaying sending your invoices. Your delay can lead to your client delaying, and you are not getting paid. Even if your customer isn’t trying to take advantage of you, waiting to send the invoice simply means you’re preventing yourself from getting your hard-earned money. The faster you send your bill, the faster you get your money.

Simplify payment processes

When it comes to payment processes, it’s always in your interest to keep it simple. You always want your clients to have an easy time giving you money, so it literally pays to find a simple way to process payments. Having complicated or messy processes just wastes time and can lead to miscommunications or frustration.That's why it would be best to learn more about Ruul's invoicing and payment features to facilitate the payment flow between you and your clients, receive payments on time, and follow up on your financials.

How to increase your cash flow as a freelancer?

Now that you’ve found ways to effectively manage your cash flow, we’ll take a look at ways that you can improve it.

Train for growth

Once you’ve mastered managing your cash flow, the next step that you can take is planning for growth. Knowing the ins and outs of your cash flow is the first step. The next step is being an expert in the business that you’re in.You need to know what your clients expect and what they’re looking for, so you can tailor your business to meet these needs. You want to be the first person your clients think of when they want something, so knowing what they want is key.The next key is to maintain and grow your organizational skills. Don’t get complacent with success. Keeping track of your cash flow will mean that you’re better able to respond to any problems or opportunities that come up. Maintaining a good cash flow and staying organized will make any plans for growth easier.

Avoid debt

Debt is the horror movie villain lurking behind every corner. One of the most common hurdles that every freelancer must avoid is debt. So, it may seem obvious, but avoiding debt is a great way to improve your cash flow. The key to avoiding debt is to plan and save accordingly. You should always maintain some form of safety net for emergencies that have to be addressed.But, you should also maintain savings for your taxes and extra business expenses. It seems like a lot to handle because it is. That’s why you should consider software programs that can help manage your accounts or look for professional accountants.Once you know your cash flow, you can suss out potential problems long before they cause serious harm. By saving appropriately and looking to cut any extra expenses, you’ll be well on your way to avoiding debt.

Track your spending

Tracking your spending is the glue that holds all these bits of advice together. It’s the main way that you can assess your business and where it stands. You should always be asking yourself, “What’s my spending like?” and “How much do I need to make a profit?”. The only way to answer these questions is by following the money flow in and out of your accounts.When you understand how much you are spending, you can decide to raise your rates or cut down on certain expenses. If you want to improve your cash flow, then you have to know it like the back of your hand.


  • What are some early signs of cash flow problems?

Some signs of cash flow problems can include:

  • Delays in receiving your payments

It’s always a hassle to chase people down for money but not appropriately handling your invoices is one sure sign that you’re going to have future cash flow problems.

  • Running out of capital

There’s the saying that you need to spend money to make money, and while some people believe it too much, there is some truth to it. You need the assets on hand to fund your business’s growth or to handle unexpected expenses.

  • Growing debt

Growing debt means that you are not making enough profits to sustain your business. While some debt should be expected, continued debt is a sign that you should assess what’s going on in your finances.

  • Slowing down business sales

When your business slows down, it can be hard to pinpoint the exact reason why. It could be the economy, a lack of exposure, bad pricing, or just the holidays. You need to be able to find whatever it is that’s causing this problem and adjust.When business is slow, you should change your strategy and market your services to new clients as a freelancer. If you want to learn how to market your freelance business, check out the article here.

  • What is the difference between net income and cash flow?

Net income is the profit that you and your business have earned over a certain period, but cash flow is the measure of the money flowing in and out of your business on a day-to-day business. So your net income is how much money you get to pocket, while the cash flow looks more like your operating activities.

  • Why is cash flow important for my business?

The cash flow of your business is important because it is one of the best ways to measure the financial health of your business. Usually, when more cash flows in than out, it’s good. Having a good grasp of your cash flow can help you navigate the ups and downs of your business by giving you the means to make sound plans.

  • What is after-tax cash flow?

According to Investopedia, “Cash flow after taxes (CFAT) is a measure of financial performance that shows a company's ability to generate cash flow through its operations. It is calculated by adding back non-cash charges such as amortization, depreciation, restructuring costs, and impairment to net income.”

  • How do I do a cash flow forecast?

First, you need to set a period that you want to measure such as a month. Next list all possible forms of income that you can find: sales, rent, loans, or investments. Then take all the expenses that you can find such as operating costs, travel, or paying off debt.Finally, take the costs and subtract them from your income to get the result (income-costs) and chart them for the time measure that you want. So for one month, you could break it down into weekly snapshots of your forecast. This is a good and simple way to create a forecast.

  • What is levered free cash flow?

Levered free cash flow or “LFCF” is the measure of how much money you have after paying off all your financial obligations. So, looking back at our forecast, it’s the money you get from taking your expenditures from your income.

  • What happens when cash flow is negative?

Negative cash flow means you are spending more money on your business than it is making. While having a negative cash flow may sound scary sometimes it should be expected when first starting as you work your way to earning profits.Often it can be just a temporary imbalance caused by something like a significant expenditure or adjusting prices. But continued negative cash flow is a sign that you can find ways to manage your business’s assets better and look for ways to improve your business’s cash flow.


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