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[Pasan Premaratne] Once you're done with a project, it's time to get paid.

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At this stage in your business things are still pretty small.

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You're going to have a bit of money in the bank, you know all of your expenses off the top of your head,

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and you know who owes you money.

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But as you grow it's going to get difficult to keep track of these things.

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Accounting, or bookkeeping, is a necessary skill set that, like all other admin tasks, will really help you grow your business.

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The earlier you implement an accounting system, the easier the entire process will be for you. But where do you start?

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The first thing you need is a system to bill your clients.

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This doesn't have to be anything complicated, and there are lots of great options out there.

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LessAccounting, FreshBooks, and Xero are some of the most popular ones for freelancers.

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You may have heard of some of the bigger packages like QuickBooks.

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Quickbooks is a great software. But unfortunately for someone just starting out, it's a little bit too much.

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There's a little bit of a learning curve. And because of this, someone who is just starting a freelance business can get frustrated quickly.

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This makes them hate all bookkeeping tasks, and it falls by the wayside.

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To show you how simple and painless accounting can be, we're going to pick a software and walk you through the process.

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When you pick your accounting software there's a few things you want to keep an eye out for.

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First, it should be really simple to use. If the software frustrates you, you will feel like managing your books is a ridiculous chore.

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Unfortunately keeping an eye on your money is crucial to running your business, so it's something you're going to have to do.

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Make sure your software is easy for you to use.

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Second, you should be able to create invoices extremely easily and be able to send clients the invoice without any hassle.

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Finally, you should be able to track all of your expenses with ease.

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Expense tracking is very important, and we'll get to why later.

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Those are the main features.

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There are other things that are nice to have, like the ability to brand and personalize your invoices,

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but they won't hold you back in any way.

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For this video we're going to use FreshBooks as our example. It has all the features that we need, and you can try it for free.

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So once you have a system in place, the second important thing you need is to figure out who owes you money.

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We need to get paid for the work we do, let's write up our first invoice to a client.

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The guys who run FreshBooks used to run a design agency and as a result, the software is built with freelancers in mind.

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Let's go over some of the important things here.

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Date of Issue—capturing the date of issue is quite important because it allows you to track who owes you money.

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You need this data to figure out if your clients haven't paid you on time and if you should be imposing fines or late payment fees.

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Taxes—if you're going to be collecting taxes from your client, this is where you would indicate it.

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We're not going to be collecting any taxes so we'll leave this area blank for now.

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Taxes are a complicated issue, varying by country and state, and this is the kind of stuff that's best left to a professional.

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Then there's Terms. On our contracts, which we're going to tackle in a bit, we're going to include some information on payment terms.

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This section of our invoice is a great place to remind them what the payment terms are

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and how many days they have to pay for services rendered.

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Let's take a second to talk about terms. Your payment terms are quite important and can really make or break your business.

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FreshBooks ran a study on payment terms, and the most common term in the invoices sent out through their system was net 30.

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That means 30 days after the invoice has been issued.

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This seems to be an implied standard in many industries, but it doesn't mean that you should be implementing the same.

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Do what's right for your financial situation.

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If you give the client 30 days to make a payment, that means if they pay you on time you're talking about getting paid a month later

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for any work that you do.

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If they make late payments, it can be as ridiculous as being paid 2 or more months after you have worked on the actual project.

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This is terrible for your cash flow. It's already hard for a freelancer to be in a stable income.

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Why make it even harder by allowing payment dates far out in the future?

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If you want your payment within a week, that's what you should ask for.

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If you think about it, everyone wants to hang on to their money.

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If I had an invoice that said I had a payment due in 21 days, I would wait until the 21st date to pay you. Why do otherwise?

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No one likes paying bills. So the longer you give your clients to pay you, the longer you will have to wait.

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Very few clients will be nice and pay you early.

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That being said, one of the other data points from FreshBook's study was that certain terms do induce clients to pay faster.

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Saying thank you in your invoice increases your chance of getting  paid, as well as avoiding technical jargon.

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Now while the data can be interpreted in many ways, the moral of the story is be polite, be simple, and be clear.

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Go with, "Thank you; we really appreciate your business. Please send payment within 7 days of receiving this invoice."

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Rather than, "Payment terms: net 30."

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Be smart about collecting payment. Always remind clients who are late, enforce guidelines, and keep tabs.

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Luckily FreshBooks has a few features that can help us do this. Notice this column here that says "Status."

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Well under that status it says "sent." That means that we sent our client the invoice but they haven't viewed in yet.

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Once they view it, the status changes to "viewed."

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This way you know whether your client is telling you the truth when they say they didn't get your invoice.

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When your client pays off the invoice, you can log that payment in FreshBooks.

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If the client had paid off part of the project costs in an earlier payment, then you can apply this credit towards the invoice total.

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FreshBooks allows you to do this in different ways.

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As you use FreshBooks more, or any accounting software for that matter,

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it will start to give you some great data to understand your business.

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You should poke around all this information to see if you can do things better and improve your business.

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Now let's assume we have a few projects under our belt with a couple clients.

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Invoices have been issued, and we've received payment on some but not on others.

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Once you start collecting all this data you will be able to do a better job with point #2 of why accounting is important,

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and that's tracking who owes us money.

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As you can see, FreshBooks shows you a quick overview of who owes you money.

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Of the $3,000 some dollars you have outstanding, $250 of that is a month late.

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But most of it is almost 3 months late.

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Now this is just an example, of course, but you can see how easy it is to keep track of your money using such software.

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Know which clients are late and by how much so that you can evaluate what action to take.

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You can drill down further by clicking down on the overdue amount to see which specific invoice was unpaid.

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The software can also show you how often your client pays so that if you were to undertake a new project with them,

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you have a better understanding of how to work with them.

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Clicking on a client here shows that they usually take a certain number of days to pay us.

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Since this number is clearly above our payment terms, it shows that we're either not clear enough with our payment terms,

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or we're not doing a good enough job of enforcing them.

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So there you go. Simple but effective ways to invoice your client.

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Now I used the free trial of FreshBooks to show you around but once you have a paid account,

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you can customize all the invoices to reflect your branding.

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Now this isn't all there is to accounting, but don't worry. We'll tackle the problems as they come along.