When you are working with consultants, there is one important thing you need to be attentive to: the consultant payment terms. After all, consultants are providing their services, so you'll obviously have to pay for what they do.
But how is a freelancer consultant or independent contractor paid for their consulting services? Do they get paid at different times, or should they receive it all as a final payment?
The payment method often depends on the consultant and the small businesses that they may be running. If you are looking to sign a contract with a consulting company, here is what you need to know about the payment.
Note: If you would like to try the best payment software (and small business tool hub) for consultants, try Bonsai. Bonsai has a whole library of tools like task management, tax, proposal, contract and invoice templates you could use to better manage your business. Claim your 14-day free trial here.
Consultants are deeply knowledgeable on tasks that are very important for you, and they can be a great help for your small business administration.
Depending on how far along their career is, a consultant may have multiple clients they are helping. This means that their time is also limited.
This is why you need to be very careful when establishing the payment system with the consultant. Not only will this help create trust between the client and consultant, but it will also make their job much easier.
The higher the skills of the consultant, the more you need to think about how to pay them upfront.
There are several ways in which consultants prefer to receive payment. These can include the following:
A lump sum, also referred to as a flat fee, is a type of payment that a consultant receives upon finishing a project. This option is usually the most straightforward one, as there are no hidden rates that the client must concern themselves with.
Lump sums are good for short-term projects with little risk of issues popping up. If the work tasks end up more complicated than expected, this may lead to heated discussions about changing the lump sum.
Some consultants prefer hourly rates as this helps them get paid faster while covering expenses. With hourly rates, you know exactly what you will be billing the consultant for, as you will pay for the number of hours.
The only issue is that if the consultant finds trouble along the way or works slower than you expected, you will be charged the same hourly rate. Over time, this can add up on the invoice - especially if the slowness is not an isolated situation.
Some consultants prefer going for hourly rates as it helps paint a bigger picture, but others prefer the monthly rate instead. When paid through monthly rates, it's much easier to cover expenses that can appear along the way, such as office equipment.
Some independent contractors prefer receiving progress payments - an option that is usually popular among most clients as well. For instance, both parties may decide for the payment to be made once they reach a percentage of the project.
Review how to charge based on your freelance market rate.
If you are the consultant, you may have issues deciding how to set the payment for your services. Here are some tips that you may use when sending an invoice to your clients.
If you have a long-term project ahead of you, then you may want to ask for a deposit first. Consultants may often have payments to make, such as renting equipment or buying things for the clients - which is where the deposit can help out.
Consultants may ask for different deposit fees depending on the services that they offer. That being said, 25%-50% is often enough for them to cover expenses and maintain a steady cash flow.
Whether you get paid by the hour or not, you may want to track the number of hours automatically. This way, you can focus on your work and actually do your job. Read a review of the best time tracker for consultants.
Programs such as Bonsai can help you log your hours automatically, improving your accounting so that the invoicing paperwork is accurate.
To avoid any late fees on the invoice, consultants may want to send the invoice immediately. Not only will this help you get paid faster, but you will also get it off your mind. The last thing you want is to start on a new project, only to realize that you forgot to send the invoice for the last one.
Consultants need to remember that, regardless of the circumstances, they must be polite. This can take the form of a simple "Thank You" note at the end of the invoice. If you are polite, you create a stronger bond with the client and may receive your payment faster.
To pay a consultant, you first have to choose the invoice option that the consultant agrees with. Do they want to get paid right away with the deposit, or do they want the entire amount in a lump sum?
Once you decide on the system, you should decide on the payment method. For instance, Bonsai is a great option for making payments of all types, as you can automate these payments. This way, even if you have to pay them hourly or weekly, Bonsai will make sure the invoicing date is respected perfectly.
Bonsai payments can be made for US, Canada, UK, and Australian users, making it perfect for freelancers that offer their services in multiple countries.
With Bonsai, you can get paid through a debit card, credit card, or ACH. Money can be sent directly from the Bonsai Cash checking account, where you may use physical or virtual cards for payment, along with wire transfers.
Consultants represent an essential part of every business, which is why you need to set up the payment terms properly. Programs such as Bonsai have templates that can make the job easier for you as a contractor as well as accounts that are beneficial for clients.