Get Your Money

21 minutes, 5 links


Updated September 19, 2022

You’re reading an excerpt from Art For Money, by Michael Ardelean. This small but powerful book helps every creative freelancer know their value and scale their business. Purchase the book to support the author and the ad-free Holloway reading experience. You get instant digital access, commentary and future updates, and a high-quality PDF download.

He who hesitates is lost.adapted from the play Cato, 1712

Getting Paid On Time

Agreements and Expectations

I once read an account of how Michael Phelps wins so many races. When he wakes up on race day, he does the same things he does every other day.

He eats, does his workout, sits in the sauna listening to a specific playlist on his headphones. He comes out to the pool, does his warmup laps, puts his headphones back on, same playlist.

At some point near the end of this day-long routine, he dives into the pool and wins a swimming race.

For Phelps, a race is not some unique event that exists somewhere in the future and incites anxiety as it approaches. Rather, competing—and winning—are just the final dominos after all of the other dominos have fallen, like they always do. That playlist is just the playlist he listens to before he wins a race.

The same is true of you getting paid.

Getting paid on time is not the result of doing the work or sending the invoice. Getting paid on time is the result of something you did before any of that: you created an agreement with the client.

An agreement is the exact opposite of an expectation. Expectations are vague and unenforceable because they are based on assumptions. Assuming the client understands how bad you need the money. Assuming they have the same definition of “fair” as you do. Assuming they’re cool with the payment terms listed in your fine print.

Clients, when they pay late, are usually just doing their job and adhering to the unspoken norm. Often in that world, it is perfectly acceptable to pay late because they know that all their vendors are accustomed to it and will likely take zero action when it happens.

It’s not malicious; in fact, in many cases, business owners consider it best practice to defer all outgoing payments (not just yours, so this isn’t personal) as long as possible and keep the highest possible amount of cash in the bank at all times. So they might avoid stating their Accounts Payable terms clearly, instead just assuming that everything will be ok when they pay at their own pace.

Understanding this, you must make an agreement with them before any work is done.

A big part of creating this agreement is simply asking for something and giving the client the power to say yes. It’s like ordering popcorn at a movie theater. You’re getting stale popcorn unless you ask for fresh popcorn. When you ask for fresh popcorn, you get it, 90% of the time, no questions asked. When this happens, you don’t get mad at the fact that they were originally intending to give you stale popcorn. You understand that stale popcorn is their business model, you just hacked it, and they weren’t even mad about it.

Since you’ve already had a fun, upbeat, and friendly conversation with your new client, expressing your respect for their brand and your gratitude for whatever mutual friend told them about you, creating this agreement should go smoothly.

That conversation might sound like:

You: “What are your payment terms?”

Them: “30 days.”

You: “Got it. Mine are normally 15, but I can agree to 30 for the 2nd and 3rd invoices, if we can make an exception for invoice #1; I just need that one settled before the work starts.”

Them: “Company policy prohibits me from authorizing any Net Zero payments, but I could do Net 15 for that first one.”

You: “Thanks. If I can make that exception for the first invoice, could you agree to Net 15 for the rest of them as well?”

Them: “Sure, we can do that.”

You: “Great. Much appreciated and I’ll adjust the invoices accordingly. You’ll have the first one in your inbox in a few minutes.”

Make this agreement verbally in person or over the phone, follow it up with an email recap, and add to your invoices a note stating the date that the Net 15 agreement was made, and with whom.


When you make an agreement with your client, paying you late would mean they broke their own agreement. This rarely happens, because most humans like to keep their word. When you have an expectation that a client will read the due date on your invoice and act accordingly, you are most likely getting paid whenever their unspoken internal policy says it’s convenient to pay you. Most likely a lot later than you were hoping. And as many wise people have said, hope is not a strategy.

There are only two things left to do:

  1. Email your invoice on its “due date” (knowing that the agreed “payment date” is 15 days later).

  2. Email a courtesy reminder three days before the “payment date,” which is the actual due date based on Net 15.

If and when a client doesn’t pay by the agreed date, the artist is no longer involved. It’s time to bring in the enforcer. The enforcer is not an automated QuickBooks reminder that meekly asks them to “kindly remit.”

The enforcer is your business manager, your bookkeeper, or maybe just you, making good use of the trust and personal report you have established with the client. And the message you are sending is that in order to keep the work flowing and the relationship in good standing, the outstanding amount needs to be settled by this very specific date.

The important thing here is that this message is not a surprise to your client. This isn’t an ambush; this is a mutually expected event. If the enforcer’s message is ignored, the work stops. If a client doesn’t respond favorably to this, and you determine that they are now blatantly breaking a clear agreement they made with you, legal action is next. A letter from your lawyer will usually do the trick, because your contract backs you up. The downside here is that you’ll never work with this client again, but that would have happened anyway, because this client did this to themselves.

You might say, “Gee, thanks Michael for the tips on what I should have done, but I’m already in the middle of a difficult client scenario. I’ve submitted work and I’m owed money. What can I do now?” Great question.

A very talented and accomplished writer recently said to me: “I know writers who wait for literally years to get paid for work. They can’t afford lawyers, and they don’t want to burn bridges! These industries are small and everyone talks! My invoices say ‘kindly send payment within 30 days of completion of the project.’ What else can normal people do?”

Unfortunately, normal is absolutely the right word for this conundrum. If you have a client who is taking years to pay you, that particular bridge is already burning. Unless the client is in direct violation of an agreement by waiting years to pay, there’s not much that can be done. You might call them and say, “Hey, looks like we’ve had an invoice outstanding for 24 months now. I realize we didn’t have an agreement around payment terms; my mistake and I’ll make sure to correct that next time. For now, can you let me know when we can expect to have this settled?” You can do this whether it’s a small business owner or the intern in Accounts Payable at a giant corporation who finally answers your email—treat them like a person, and they might show up for you.

In lieu of any real leverage, this is just an appeal to their sense of fairness, which may or may not be effective. You might just have to let it go.

If we’re talking about a quick two-day job with only one payment expected, and you’ve already turned over the work and don’t have any leverage left, then your leverage becomes the next job. You delivered great work, on time, and they’re going to want more of this. When they do, before you accept, call them and explain that due to the unfortunate outcome of the last project, you’ll have to make different arrangements for this one.

This call could be intimidating and awkward, but it’s not, because you’re a professional. You have conducted yourself well, you use a nice tone of voice, and you separate the person from the problem.

It’s not “You tried to rip me off last time, Sharon!”

It’s “I understand that those circumstances were likely out of your control and mine, so I’ll just need to collect payment up front this time. I’ll be ready to dive in as soon as payment clears.”

Here’s a visual example of what your invoice should include:

Important things to note about this example, and incorporate into your own invoices:

  1. It’s not too difficult to look at. Use a format and font that leave plenty of white space. Tie it aesthetically to your brand, and to the proposal that got you here.

  2. The services are listed, same as on the proposal, and the project name is included. No confusion about what this invoice is for.

  3. Even though this is just the first invoice of three, all three invoice amounts are outlined. This way, anyone who wasn’t involved in the money conversation still has a clear picture of the total amount owed, and knows that there will be two more invoices coming.

  4. Even though you’ve made reference to three invoices total, you’ve clearly highlighted the specific amount due for this particular invoice (use whatever combination of font size and boldness you choose, and keep it classy).

  5. It includes the name of the person in Accounts Payable who is directly responsible for payment, and the name of the project contact who approved this whole thing to begin with. If any internal confusion arises, these two people can find each other and speak directly.

  6. All bank details are listed: account number, routing number, SWIFT code, PNI (Payment Network ID), and even your mailing address. Give them every possible (reasonable) way to pay you, and zero reasons to delay.

  7. The terms are at the bottom in the same size font as everything else. It’s not screaming but it’s not whispering either. Speak softly and carry a big stick.

Forming an Entity

The mind is for having ideas, not holding them.David Allen

At some point in your freelance career, you’re going to ask yourself this question: should I start a business?

When it comes to what people call your business and how the IRS will treat it, you have a few options. If you don’t have any partners, you’ll likely be choosing between an S Corporation, an LLC, or a sole proprietorship. A sole proprietorship is just you asking your clients to write checks to you personally (or your parents’ bank account). This is sometimes also called a DBA, meaning you’re an individual Doing Business As some registered business name.*

The factors to consider when choosing how to proceed: your tax burden, your liability, and your overall professionalism. I’m not a tax professional, but I have a brilliant one on retainer, and she helped me write this next part.

In my view, if your freelance work isn’t just a passing phase and you plan to make a real go of it, it almost always makes sense to form a business entity. The reasons for doing so have shifted with the tax law (and probably always will, so stay in touch with your CPA), but if you can afford the few hundred dollars it costs to form a business entity, and the subsequent tax ($800 per year in LLC tax or 1.5% tax on net income for your S Corporation), the tax savings will likely more than make up for it. Why? Because businesses are generally taxed at a lower rate than people are.

Here’s a tidy breakdown of what forming and maintaining the two most common entity types (LLC or S Corp) will cost you on an annual basis (picking California, one of the higher-tax states, as an example):

  • One-time costs

    • Formation: $500–$1,500
  • Annual costs

    • California Tax: $800–1.5% of net income

    • California LLC fee (gross revenues $250,000–$499,999; doesn’t apply to S Corps): $900

    • Tax Services (CPA): $500–$2,500

    • Annual (or Bi-Annual) Statement of Information filing fee: $20–$25

    • Bookkeeping software (yes, you need this): $300–$840

    • Bookkeeping service (yes, you need this): $2,400–$7,800

    • City Business License: $1.01–$4.50 per $1,000 of gross revenues

    • Payroll processing (only applies to S Corps): $540

So it costs roughly $5,000 annually in taxes and professional service fees to run your business entity. (Actually less than that, because even if you don’t form an entity, you’re still required to keep your books and file your taxes). Sounds like a lot, but remember, all of those costs are tax-deductible and a good CPA is trained to help you identify all the ways to offset (or more than offset) those costs.

Nuance applies to all of the above, so call your CPA—or go hire one now!—to see what’s right for you. My CPA actually wanted to go into more detail here in this book, but I wouldn’t let her, because your eyes would glaze over. If your questions go beyond what this book offers, you should be seeking the advice of a money professional. If you have no idea where to start, a free consultation is pretty standard. Free personalized professional knowledge is as good as free money, so take advantage.

If these costs are a deterrent for you because you aren’t currently pulling in that much money, let’s work on changing that. The moment you can reasonably project that you’ll earn enough (and deduct enough) to offset that rough $5K figure I mentioned above, form your entity. If you’re quibbling internally about whether you’re going to make $63K or $68K next year, you’re thinking about this wrong. Instead, plot a path to $150K (or some number that feels the right combination of thrilling, scary, and feasible) and build your entity accordingly. You plan to grow, right? No reason to delay this.

Aside from the financial reasons to form an entity, here are two more:

  1. Professionalism. You want to attract money from clients. Businesses want to send electronic payments to other businesses, not send a Venmo to someone’s cousin.

You’ve spoken to your CPA to determine what type of entity is best for you, and what it will cost—a good lawyer can handle the rest. Personally, I use CPA Collective for all tax advice (they specialize in small businesses and freelancers) and Better for my entity formation needs, but there are many options for both. For more legal protection, may also want to consider liability insurance, especially if you’re a sole proprietor. State laws vary, but a few Google searches will or a recommendation from your CPA will set you straight.

Recap: if you can afford to formalize your business as an entity, do it now. If you can’t afford it now, use this book to get yourself to a place where you can. If you have no intention of growing your business to a size that would necessitate the bare minimum outlined above, then I love you but this isn’t the book for you.

Banking, Collecting, and Saving

We live in a fantasy world, a world of illusion. The great task in life is to find reality.Iris Murdoch

Once your entity is formed, you can take that paperwork to your bank of choice and open a business account. Put your new account number, routing number, SWIFT code, and bank branch address on your invoices. Now your clients can send electronic payments.

One hack I discovered years ago via Ramit Sethi’s book is that many banks will allow you to open multiple savings accounts, nickname them, and link them together. As a person, this helps you save for different goals—car, wedding, vacation, house. As a freelancer, this helps you organize your income, most importantly by setting aside for taxes.

Here’s how I do it:

When a payment comes in, immediately send 35% of it to a savings account named “Taxes.” Why 35%? It’s a bit arbitrary, but the main reason is that it roughly represents the maximum you are likely to need come tax season. If this is imprecise, or even overkill, fine. At the end of the year, a surplus is better than a shortfall.

Do that every month, amassing a tidy pile of money that is reserved for the IRS. Maybe.

Your CPA will help you create and pay quarterly tax estimates, or wait until December to pay it all at once, depending on what type of entity you form.

If all goes well, your deductions could reduce your tax bill, meaning you might not owe the full amount you’ve saved. Examples of deductions:

  • Your office space or a portion of your rent if you work from home

  • Your equipment

  • The things you purchase as reference samples or learning materials

  • Meals or coffees you buy for clients

  • Potentially many other things which your CPA will help you identify

If this happens and you have money left over, you can contribute the difference to your SEP IRA (imagine a 401(k), but without the part where your employer chooses non-optimal funds on your behalf and passes the excessive management fees onto you), reducing your tax bill even more, and also making you rich over time. It’s like a wonderful circular turbocharger of wealth building. I’ll write a separate book on the topic. For now, just open a business bank account and follow those three steps.

Client Relationships9 minutes

The line separating good and evil runs … right through every human heart.Aleksandr I. Solzhenitsyn

Let’s address the fallacy of the Bad Client. Many creative people believe that there are good clients and bad clients, and all you have to do is avoid the bad ones, and the good ones will just be totally cool to you without you having to require it.

This, of course, is false.

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