Freelance payment terms are the conditions a freelancer sets in reference to their payment for a project. While a client can still negotiate these conditions, the final payment terms would have to be agreed upon by both parties.

With the growing popularity of freelancing in the USA as a career path, it’s crucial for individuals to understand and set the appropriate payment terms to ensure they receive timely payment. So, in today’s article, we’ll explain the different freelance payment terms you should know of and share our best tips for invoicing as a freelancer.

Let’s start!

Key Takeaways

• Payment terms refer to when and how freelancers are paid and ensure that they receive payment in a timely manner.
• The key freelance payment terms you should know about are payment schedule, payment method, late fees, and preferred currency for international clients.
• Some common payment conditions you can use include upfront payment, end-of-month compensation, and stage payments.
• When sending freelance invoices, make sure to use online tools to create your forms, communicate with clients, send regular reminders, and keep detailed financial records.
• Freelancers should be aware of important tax considerations, such as Form 1099, Form 1040, and self-employment tax, to accurately file and pay their taxes.

What Are Payment Terms and Why Are They Important?

Payment terms refer to the conditions that affect how and when a freelancer is paid. Having concrete payment terms is important for both businesses and freelancers, as it allows them to manage their cash flow properly. Moreover, clear terms can help reduce invoice disputes due to misunderstandings about pay.

In a freelance invoice, well-defined payment terms are essential to help avoid delayed or missed payments, which is a common issue among freelance workers. In fact, a 2019 study by Freelancers Union and the NYC Office of Media and Entertainment showed that 73% of all freelancers have experienced late or nonpayment from clients.

Since freelancers rely solely on client payments for their income, having clear freelance payment terms ensures their financial stability.

4 Key Freelance Payment Terms and How to Set Them Up

Knowing key freelancer payment terms and conditions and how to set them up is crucial for timely payments and a stable business.

Here’s a simple guide for common freelance payment terms:

#1. Payment Schedule

Payment schedules for freelancers refer to how often you prefer to receive payment.

These are the common payment schedules that freelancers often use:

• End-of-month payments
• Advanced payments
• Stage payments
• Upon receipt payments

Clearly stating your preferred payment schedule in your contract can help you and your client stay on the same page, thereby reducing the risks of late payment and ensuring a consistent cash flow.

#2. Payment Methods

Another important freelance payment term to include in your contract is the acceptable payment methods you want to use.

Freelance payment methods can include the following:

• Bank transfers
• Credit card payments
• Online payment platforms (PayPal, Stripe, Wise)
• Checks
• Wire transfers

Make sure to consider both your and your client’s needs and offer alternative payment methods to prevent any inconveniences later on. For instance, there can sometimes be delays or issues when sending payment through checks or wire transfers, so consider adding a more convenient option like PayPal so your client can process payment right away.

#3. Late Fees

Adding a late fee clause to your freelance payment terms is an excellent way to avoid unpaid invoices and encourage your clients to pay on time. This condition should specify the additional charges a client will be subject to if they fail to pay by the invoice due date.

Late fees can either be a fixed charge or percentage-based for each week or month that payment is delayed. Freelancers often charge between 1% and 2% of the total amount in late fees.

#4. Preferred Currency for International Clients

When managing freelancer payments, it’s important to consider the different currencies when receiving pay from international clients. Since exchange rates often fluctuate, you can state in your freelance payment terms that you prefer receiving payment in USD only. This ensures that you’ll receive the full amount you agreed on, regardless of the current rate.

4 Common Payment Conditions

From project-based compensation to stage payments, freelancers have a variety of standard payment terms and conditions to choose from.

Let’s discuss each one in detail:

#1. Hourly vs. Project-Based Payments

Freelancers can decide whether to charge their clients by the hour or per project. Each payment condition has its own pros and cons, depending on the type of client.

• Hourly payments. This type of freelance payment term means that you will be paid for every hour you work for a client. This is best for projects with an unclear scope, as it allows you to be flexible with your tasks and responsibilities.

• Project-based payments. On the other hand, project-based payments require a fixed fee at the beginning of the project. So, regardless of how much work you do, you will only be paid the agreed-upon amount. This is ideal for projects with a clear scope, such as writing an article.

#2. Upfront Payment

You have several options for upfront payments for freelancers, including:

• Full payment. This means the client will compensate you for the full amount upfront before any work even begins. Full payments are often best when working with a new client to ensure that you get paid for the project.

• Retainer. With retainer fees, clients would pay you a portion of the total amount upfront and then the rest once the project is complete. The initial fee would have to be mutually agreed on by the client and the contractor and often specifies the number of hours covered.

• 50-50. Similar to a retainer, a 50-50 freelance payment term involves receiving payment upfront, but in this instance, the client will pay exactly half of the total amount.

#3. End-of-Month Payment

As the term suggests, end-of-month payment means that you receive your compensation all at once at the end of the month. Clients often prefer this method as it simplifies their bookkeeping process since they only have to send payment once.

That said, setting end-of-month freelance payment terms has the risk of nonpayment, so it’s best to only use this condition with clients you have a longstanding professional relationship with.

#4. Stage Payments

For longer projects, you can ask for stage payments that entitle you to receive partial payment for every milestone completed while the project is ongoing. Breaking down payments into multiple installments can be beneficial for both you and your client, as they help you maintain consistent cash flow while making payments more manageable for them.

This type of freelance payment term can be used alongside recurring invoices to bill your client for services rendered during a specific period of time.

4 More Payment Terms and Conditions Every Freelancer Should Know

In addition to the common payment conditions we shared above, there are other less frequently used terms that you can state in freelance payment contracts, such as:

• Net terms. Net payment terms can vary from 7, 10, 15, 30, 45, 60, or 90, which refers to the number of days when payment is due. For instance, “Net 15” means that the total payment for the service will be due 15 days after the invoice request.

• 15 MF. This freelance payment term simply means payment should be sent on the 15th of every month.

• Upon receipt. Using this freelance payment term in your contract means your client should process your payment as soon as they receive the invoice. Because of its quick turnaround, not all clients may agree to this condition, so it’s best to propose it only if you’re sure the client can accommodate the payment terms.

• 2/10 Net 30. This is a type of negotiating freelance payment term where “2” refers to the discount on the total amount due, and “10” refers to the number of days the client is expected to process the payment. If they are unable to meet this condition, then the payment condition will automatically revert to Net 30.

4 Tips and Best Practices for Invoicing as a Freelancer

If it’s your first time invoicing, it’s not enough to just know the key freelance payment terms; it’s also important to understand how to invoice properly as a freelancer.

Here are four expert tips and practices to keep in mind:

#1. Use Online Tools

While invoicing may seem like an easy and simple task, doing so manually can be extremely time-consuming and prone to mistakes. Instead of spending hours invoicing for each client, you can use online tools like Paystub.org to streamline this process by automating calculations and creating professional invoices in seconds.

Our tool’s built-in templates allow you to add client details, your preferred freelance payment terms, and other information quickly, helping you save time while ensuring accuracy.

#2. Communicate With Your Clients

Clear and open communication with clients about payment expectations is key to avoiding misunderstandings and payment delays. Before starting a project, make sure to clearly outline your freelance payment terms to prevent any issues later on.

If you need to change payment terms or due dates because of unforeseen circumstances, make sure to update your client promptly as well. By keeping your client informed of all the changes, you help build trust and transparency, which can encourage them to process payment promptly.

#3. Send Reminders

Even if you set clear freelance payment terms, clients may still forget to pay an invoice due to a busy schedule. When this happens, don’t hesitate to send a friendly invoice payment reminder to urge them to pay the outstanding bill. You can even send a reminder a few days before the due date to help keep payments on track.

#4. Keep Detailed Records

One of the main causes of freelance payment disputes is misunderstandings when it comes to payment terms, so it’s crucial to keep detailed records of all client communication and agreements. Doing so, alongside proper invoice management, will help resolve disputes faster and ensure smoother tax filing.

Important Tax Considerations for Freelance Payments

From 1099 for freelance work to self-employment taxes, there are some important tax considerations that every freelancer should know:

Form 1099

A Form 1099 is a tax form, usually sent to you by the client, that states your total earnings from their business. There are several types of this form that you may receive, including:

• Form 1099-NEC. This form is used by businesses to report payments provided to non-employees, which includes freelancers. Form 1099-NECs are sent to contractors who received over $600 in payments.

• Form 1099-K. This tax form is a report of all the payments you receive from cards, payment apps, and third-party settlement organizations. Form 1099-Ks are only sent if the total payments you receive exceed $2,500.

That said, even if a client doesn’t send you this form, you will still need to report the income you received from them when filing your tax return. You can also use Paystubs.org’s 1099 generator to create your own copy of this form for record-keeping purposes.

Form 1040-ES

You can use Form 1040-ES to determine your estimated taxes; if it exceeds $1,000, you’ll have to file this form along with your freelance taxes every quarter. It’s best to do this early rather than waiting for the filing deadline to avoid any applicable penalties.

Form 1040 Schedule SE

Lastly, you’ll need Form 1040 Schedule SE to pay self-employment taxes, which includes the 12.4% Social Security tax and the 2.9% Medicare tax. Traditional employees will split this amount with their employer, while self-employed individuals and freelancers must pay these taxes in full.

Final Thoughts

Setting payment terms for freelancers is crucial for ensuring timely payments, avoiding disputes, and maintaining an amicable work relationship with clients. To further simplify your invoicing process and reduce the risk of payment delays, consider using Paystub.org’s invoice generator to create your documents instantly.

Our online generator has several professional templates you can use to generate clear and standardized invoices, complete with all the required information for a smooth billing process.

Freelance Payment Terms FAQ

#1. What are 50-25-25 payment terms?

50-25-25 payment terms mean that the client would pay 50% of the cost upfront, another 25% on an agreed-upon date during the project, and the remaining 25% at the end of the project.

#2. How should I accept payment as a freelancer?

As a freelancer, there are several ways to accept payment, including online payment platforms like PayPal, Wise, and Payoneer, or traditional methods like bank transfers or checks.

#3. Should freelancers request upfront payment?

Freelancers should request upfront payment, as it ensures that they will be paid on time. Unlike traditional employees who are guaranteed their wages every month, freelancers rely on payments per project, so any delays will significantly impact your financial capability.