Cashflow is one of the major struggles for any freelancer or small business owner in any industry. Money is a huge topic in this field. Everyone wants to know more about it, but few want to give details about it.
The biggest complaint I often see is the neverending issue of people not getting paid from clients. Everyone should be paid for their work, no questions about that and I’ve had my share of times when I’ve been burned by clients. Too much time and frustration are spent trying to get paid.
The issue is that the pipeline for cashflow is exceptionally broken.
At LooseKeys, if I have a big job come in, and we can’t take care of it all in house, I’ll often bring in an extra hand or two. Ideally, LooseKeys has been paid for a portion of this project at the start of the project by the client. This initial payment hopefully covers most of our costs for freelancers, music, stock, and voice-over at the beginning of the project.
When the project is completed, I have those freelancers that have come in that need to be paid typically NET 30. The staff also needs to be paid, and any overhead for the studio space also needs to be paid monthly. If the project crawled on over many months, then I keep a decent buffer in the bank account to cover those things until the final payment comes in from the client. Any freelancer likes to believe a studio shouldn’t take the job if they can’t pay the people working on it and since I was once a freelancer too, I try to stand by that.
So now as a studio, you’re waiting on that final payment from the client, which is also NET 30. 😔
If this was direct with the client, it’s pretty simple, bill them the final invoice and expect payment. However, if we are working through an agency or another studio or producer, we invoice them, and then they, in turn, invoice their client… NET 30 but that’s often depending on the client. Sometimes clients can be NET 60, or I’ve even heard NET 120. That’s right, you would finish a job and not be paid the final invoice for another 4 months. Lots of expenses to float if that is happening.
This is a terrible flow that fails fast.
Client — Agency — Studio — Staff/Freelancer
One person paying late or an issue happening in the cash pipeline, and this all gets messed up. I’ve had clients who are sometimes startups or smaller companies like myself tell me they either had cashflow issues or are waiting on money coming in. So then I wait longer to get paid.
Right there, they are facing the same things I often am, making sure their staff is paid, waiting on a client or revenue stream to pay them so they can then pay me so I can also pay people.
And then there is the moment someone in this pipeline decides not to pay at all! Well, everyone now has to find a solution to pay the people they need to pay regardless. It’s easy to talk about contracts and late fees, but the whole system is broken at the top.
As a small business owner, all this weight falls on me, and I do my best to act in good faith because I’ve been on both sides. If something happens at LooseKeys, it’s all me… if a client doesn’t pay or is late, I take the hit for not making sure I was better covered. Since I’ve been a freelancer before I try not to make a freelancer wait long before payment. It’s helpful that I have a small business, and I keep the number of projects and employees/freelancers manageable so that I don’t overextend myself.
It’s not until you’ve had to deal with all sides, do you see the issues of the whole system.