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Freelancing and consulting: How’s the rule of 45—or 60—working for you?

Joel Libava, The Franchise King, made an interesting point recently in discussing how consultants and other service providers are paid by their corporate clients:

Who is responsible for making up the rule of 45?

In other words, who decided that it should be the norm for companies to pay their vendors and/or service providers 45 days after the work was performed? Is there that much interest being earned in company checking accounts in 45 days time?

Could be worse. I’ve known of companies that hold invoices for 60 days or even longer before paying.

Could be even worse. I’ve heard of companies (but have not personally experienced this) where after waiting months for payment, the freelancer was told to settle for 50 cents on the dollar if he wanted to be paid at all.

I’ve collected almost everything I’ve billed along the way, but there have been occasional problems. I once waited for weeks for a check from a large corporation. Finally I got hold of the administrative assistant. Turns out that the invoice had gotten misplaced under a pile of papers on the boss’s desk and had not even been submitted to Accounting yet!

The admin actually asked if I was sure I wanted her to bring it to the boss’s attention because she may be angry.

ANGRY!?

Guess who was angry. I simply asked for her to please take action on it because I was awaiting payment. I was proud of my restraint.

Why would I care if she was angry? I wouldn’t want further assignments which also may never be paid for.

A boss who was a director of corporate finance explained how it all works as follows: The job of Accounts Receivable / Accounts Payable is to send out invoices in the morning and send out payments after the invoicing is completed.

In other words, first priority is collecting from others. Paying others is a lower priority.

I am angry when payments are later than promised, when clients require repeated phone calls and extensive follow-up, when unexpected paperwork complicates the payment of submitted invoices.

I once had a client who required months of complex hurdle jumping before I could be paid. I even had to take a drug test. (Kind of interesting, considering my use of drugs would in no way impact my writing, all of it done thousands of miles from the client. If content is what they want, why does it matter to them if I’m using drugs?)

As freelancers and consultants, we read constantly about how important it is to be “paid what we are worth.” I am even more concerned about being paid “when I am worth.”

I would prefer seven days . . . and yes, I have been paid by my best clients in seven days or less.

Some of my favorite clients pay by Paypal within an hour or two of receiving my bill. I bless them. Everyone has his quirks and can be difficult on occasion, but it’s incredible how much slack I can cut people who pay quickly and fully.

The world of work would be a better place if we freelancers and consultants encouraged each other to require prompt payment as much as we encourage each other to charge top rates.

We know that freelancers and consultants are a growing part of the labor force. We are aware of downward pressures on pay rates and there is widespread discussion of how to combat these pressures.

But we also need more attention to speed of pay. High-quality service providers must stand up for prompt payment just as much—or even more than—charging livable rates appropriate to the quality of our work.

One final thought on speed of pay. Those of us who do assignments for companies (B2B) are working with individuals who are paid regularly by their companies. If they showed up at work on the last day of the month and learned without explanation that their pay had not been processed—or that they were not paid because Payroll was otherwise busy and didn’t get around to it—they would be furious. Perhaps they would walk off the job.

We freelancers and consultants should expect prompt payment, given that the people giving the assignments are paid promptly and in full.

Originally posted 6-30-14

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