How to Bill as an Independent Contractor

For independent contractors, understanding billing is fundamental to financial well-being. Proper billing involves clear communication, financial planning, and diligent record-keeping. Efficient billing ensures timely compensation, predictable cash flow, and positive client relationships. This knowledge helps maintain stability and growth.

Essential Information for Your Invoice

Every invoice is a formal request for payment and a detailed record of services or goods. It must contain specific information for accounting and tax purposes. Accuracy and completeness are paramount.

Your invoice should display your legal or business name, mailing address, and contact information. The client’s legal or business name and address should also be listed. This identifies both parties.

A unique invoice number is necessary for tracking. Include the invoice date, which marks the start of payment terms. An itemized description of services or products is essential, detailing work performed and service dates. For example, specify “Website Content Creation – 5 blog posts (July 1-15, 2025)” instead of “Consulting Services.”

For each item, specify the rate (e.g., $75/hour or $500 project fee) and the total amount due. The invoice must state the total amount due for all items. Indicate the payment due date.

Specify accepted payment methods like direct bank transfers (ACH), checks, or online payment platforms. If applicable and agreed upon, include late payment policies or interest charges, such as “A late fee of 1.5% per month will be applied to overdue balances.” This clarifies financial implications of delayed payments.

Clients may request your Taxpayer Identification Number (TIN), either your Social Security Number (SSN) or Employer Identification Number (EIN), via Form W-9. Businesses generally require a W-9 from contractors if they expect to pay $600 or more annually. This form provides tax information, enabling the client to fulfill IRS reporting obligations, such as issuing a Form 1099-NEC. You provide the completed W-9 form to the client, not the IRS.

Setting Your Billing Terms and Methods

Establishing billing terms and selecting payment methods are strategic decisions. These choices shape pricing and how clients pay, impacting your financial operations. Communicate these terms to clients and have them agreed upon, ideally in a written contract, before work begins.

Common billing structures include:

• Hourly rate: Charging for time spent, suitable for fluid work scopes.
• Project-based fees: A fixed price for a defined scope, offering predictability.
• Retainers: A set amount paid regularly for ongoing access or a block of hours, providing consistent income.
• Value-based pricing: Tying your fee to the perceived value or results delivered.

Payment terms specify when payment is due after an invoice. Common terms include “Net 30” (payment within 30 days) or “Net 15” (payment within 15 days). Some contractors request “payment upon receipt” or an “upfront deposit” before work begins. Stating these terms helps manage client expectations and cash flow.

Clients can pay using various methods. Direct bank transfers (ACH) are typically low-cost and efficient. Checks remain a traditional option, though they involve physical handling. Online payment platforms like PayPal, Stripe, or Square offer convenience, allowing clients to pay via credit card or other electronic means. These platforms usually charge transaction fees, often ranging from 1.5% to 3.5% of the transaction amount, plus a small fixed fee. Some platforms may also have monthly fees or higher rates for international transactions.

The Billing Process and Follow-Up

Once information is prepared and billing terms are set, the billing process involves generating, sending, tracking, and following up on invoices. This ensures timely payments.

Invoice generation can be managed using accounting software, invoicing applications, or professional templates. These resources ensure a consistent appearance for invoices and streamline inputting detailed information like service descriptions, rates, and totals.

Send invoices promptly for a consistent billing cycle. Invoices can be delivered via email (as a PDF), through a client portal, or by mail. When emailing, use a professional tone, a clear subject line, and attach the invoice. This helps ensure the invoice is received and recognized.

Tracking all sent invoices and received payments is crucial for financial management and tax compliance. Maintaining accurate records allows you to monitor outstanding balances, reconcile accounts, and prepare for tax obligations. Simple spreadsheets or accounting software can be used for tracking.

Payment follow-up is important for managing accounts receivable. If a payment is overdue, send polite reminders. This might begin with an email a few days after the due date, followed by subsequent emails or calls if payment remains outstanding. If necessary, escalate the issue, referring to agreed-upon late payment policies in your contract.

Upon receiving payment, confirm its receipt. A brief email acknowledging payment and expressing gratitude is good practice. Providing a receipt, especially for larger payments or when requested, contributes to professional communication and clear record-keeping.