Solopreneurs all across the globe know that being an independent worker doesn’t just mean that you are an expert in your chosen field, you suddenly also need to be a guru about all things business. That means being super knowledgeable about finance, business law and contract management. And the first hurdle to clear as a freelancer? Can you invoice a company as an individual?
Ask any freelancer and they'll tell you that creating an invoice for freelance work and chasing payments can be one of the most frustrating parts of the job. It was supposed to be simple, right? You provide a service, your client pays you. But IRL, it's usually not that simple.
Whether you've found a side-hustle to supplement your full-time job or you're a seasoned solopreneur, the confusion around how to invoice as a freelancer remains largely the same. So what are the most common invoice issues for freelancers and how can you overcome them? Whether you're already a full-time freelancer or just trying to invoice a company for contract work, we've got all the tricks and tips to invoice as a freelancer with less time and less stress. Read on!
Common problems freelancers face when creating invoices as an individual
Calculating VAT as a freelancer
Ahhh, the dreaded VAT or Value Added Tax. Value Added Tax is to Europe what sales tax is in the United States: it's a flat tax added to a product or service at every point in the supply chain where value is added. And just like in the states, each EU country has its own VAT rate and specific rules about the where, when and how it gets collected. Which means that as a freelancer, it's your job to calculate how much VAT your client owes, add it to each invoice, and then pass the sum along to government at the end of each taxable period (each country has different rules, so be sure to do your research).
If this sounds like a gigantic extra headache, you'd be right, because it absolutely is. Lucky for you, there are platforms that can help automate this so you don't even have to think about VAT or remember what it stands for. Keep reading for more tips to outsource VAT hassle.
Chasing unpaid invoices as a freelancer
Chasing late payments as a freelancer is obviously a huge problem. This doesn’t just cause financial woes, but it can also have a huge impact on a freelancer’s mental health while wasting precious time and energy that could be better spent... doing pretty much anything else.
The Association of Independent Professionals and the Self-Employed (IPSE) has published research showing that freelancers spend an average of 20 days a year chasing late payments, with 43% even letting work go unpaid as the process becomes so time-consuming.
This seems like an extreme outcome, but the reality is that many freelancers don’t want to rock the boat with clients and harm the relationships they have worked hard to build. However, research from IPSE found that 71% of client-freelancer disputes are about late payments.
Figuring out banking when you invoice as a private person
So the good news is the client is ready to pay. But the bad news is... where? Having them deposit the money to your personal bank account is, of course, an option. But it's far from ideal. Here's why:
- It doesn't look professional. Few things confirm that you're a rookie freelancer faster than the words, "Just, like, wire the money to my personal bank account, I guess."
- It creates a nightmare for your accountant. So where does business finance end and personal finance begin? If your bank account is any indication — it doesn't. And between the extra time and extra fees — it'll make tax time even more painful than it usually is!
- Business expenses? Forget it! Reimbursing business expenses is a great way to save money by optimizing your tax bill. But when you don't have a dedicated business bank account to separate business and personal — and that charge for your new laptop is sandwiched between charges for a night out on the town with your friends— it's significantly harder to claim those expenses.
Best invoicing tips for freelancers
So how can you avoid payment disputes and how should you send invoices properly? At the end of the day, a vague or poorly-formatted invoice could result in client confusion and delays in payment, so you should make sure you do everything you can to get it right the first time!
What should be included in a freelance invoice?
Here's what your freelance invoice should include:
- Your name
- Your client’s name and contact details
- A unique invoice number
- Dates (invoice issue date and due date)
- Prominently-displayed directions for how the payment should be made
Tips for freelancers to invoice a company as an individual
Be accurate with a detailed list of services provided and the subsequent fees being charged
- Bad: "February Content"
- Better: "February Content - four 800 word, seo-optimized blog posts"
- Best: "February Content - four 800 word, seo-optimized blog posts" (then list each individual blog post)
Give your invoicing a little more legislative-power by making sure you and your client have a contract or Service Agreement that details expectations for each party. This will give you a little more protection if your client decides to be a jerk and not pay you for your work.
Adhere to any sales tax laws for the countries you’re invoicing to/from to avoid extra surprise fees.
You should also take care to be prompt in sending out invoices as soon as the work has been completed. That way the work is fresh in the client’s mind and they'll (hopefully) hustle that much faster to pay up!
If you've done all of the above and your payment is still late, then it's wise to not wait too long before sending a polite reminder. Setting up a payment reminder system where prompts are sent out automatically may be a good idea because it will save your time and reduce your stress. Don’t be afraid to take further action if invoices remain unpaid, especially after several outreach attempts.
Best solution to invoice a company as an individual
Unsurprisingly, many freelancers and entrepreneurs simply don’t have the time or the patience for such detailed invoicing procedures. It's easy to become overwhelmed and from there, things tend to unravel and invoices and follow-ups start to fall through the cracks. This is bad for business for two reasons: you're missing out on money that's owed to you, and it makes you look flakey and unprofessional.
A significant number of freelancers are now turning to digital invoicing tools and business partners like Xolo Go to invoice company as a freelancer. Here's why...
Xolo Go: The easiest way to invoice a company as a freelancer
Working with Xolo Go means you have your very own virtual company that allows you to invoice a company, no matter where you are in the world. The concept is based on a unique partnership model that allows freelancers like you to use Xolo’s legal framework so you can enjoy the benefits of having your own company without having to register one yourself. That means you'll have:
- The ability to send EU VAT-compliant invoices to clients (Xolo adds VAT automatically)
- A dedicated business bank account (provided by Xolo) where you can collect your payment in the most professional way possible
- A way to effortlessly upload business expenses and get reimbursed
- The option to download income reports to share with your accountant at tax time
- A business dashboard that gives you a birds-eye view of your business financials
This means that you can avoid the headaches and complexities that arise from operating your own business. You don't have to deal with the bureaucracy and expense that comes with registering a traditional business. And when it's time to pay yourself, you don't have to worry about figuring out how to distribute dividends or other financial complexities that are par for the course with "old-school" businesses. A solution like Xolo Go means you simply withdraw the money from the complimentary business bank account provided to your personal bank account. The transfer is fast and painless. It'll make you wonder why more things can't be this simple!
And that's not all. Xolo Go gives freelancers all the features of a full-fledged business: in addition to the complimentary business bank account previously mentioned, you'll have your very own business dashboard where you can effortlessly send and track VAT-compliant invoices, reimburse your business expenses, download earning reports to share with your accountant at tax time, and stay on top of all your financials... without the responsibility and headache of maintaining a "real" (traditional) company.
Xolo Go works by allowing freelancers to use its online projects function to agree on a particular service before committing to work, after which invoices can be sent and payments received.
As a freelancer, having a virtual company with Xolo Go means that it is totally paperless, the administrative burden is lifted, and you can spend your time working on the things you enjoy — that actually make you money! You even get invoice templates and can easily receive payments from your customers to a business account.
As we're wrapping up this article, we just realized we didn't even touch on the two most popular reasons that freelancers and solopreneurs think Xolo Go is the best freelancer tool to invoice:
- We only get paid when you get paid. No contracts or no surprise extra fees. In exchange for our services, we charge a flat-rate fee of 5% from every withdrawal to your personal bank account.
- It takes less than 10 minutes to sign up. You heard us — you're less than 10 minutes away from sending your first invoice. All you need is a smartphone and a valid form of ID to get started.
So what are you waiting for? Take your freelance business to the next level and start invoicing like a company today!
