Running your business
How to invoice as a freelancer
How to set up invoicing as a freelancer, from choosing hourly, project, or retainer pricing to deposits, contracts, and setting money aside for taxes.
Key takeaways
- Choose a billing model (hourly, project, or retainer) that matches how the work is scoped.
- Use a short written agreement and a deposit for every new client.
- Track time and expenses as you go, and invoice on a predictable schedule.
- Set aside money for taxes from each payment, and get advice on what applies to you.
When you're employed, payroll takes care of getting paid. As a freelancer, you are the payroll department. That means setting rates, deciding when to bill, following up on late payments, and keeping records good enough for tax season.
None of it is complicated, but it works best as a system you set up once rather than something you reinvent for each client. This guide walks through the pieces.
Choose how you'll charge
Most freelancers use one of three models, and many mix them depending on the client.
| Model | How it works | Works well when | Watch out for |
|---|---|---|---|
| Hourly | Bill for time worked at a set rate | Scope is unclear or keeps changing | Income capped by hours; clients may question time |
| Project (fixed fee) | One price for a defined deliverable | Scope is well defined | Underestimating effort; scope creep |
| Retainer | A recurring fee for ongoing work or availability | Long-term clients with steady needs | Unclear limits on what's included |
Setting your rate
Start from what you need to earn, not from what others charge. Add your target income, your yearly business costs (software, equipment, insurance, health coverage), and an allowance for taxes. Then divide by the hours you can realistically bill. That number is usually much lower than the hours you work, because admin, sales, and learning don't get invoiced.
For example, say your target income is $80,000, your business costs are $12,000, and you plan to set aside $20,000 for taxes. That's $112,000. If you can bill 1,200 hours a year, your minimum rate is about $93 an hour. Your experience and your market determine how far above that floor you can go.
Put it in writing
A short written agreement protects both sides and gives your invoices something to point back to. It doesn't need to be long. Cover:
- Scope: what you'll deliver, and how many revision rounds are included
- Price and billing model, including your rate for extra work
- Payment terms: deposit, due dates, accepted methods, and any late fee
- Timeline, and what happens if the client's delays push it back
- Ownership: when rights to the work transfer, often on full payment
- How either side can end the agreement
Contract templates are a reasonable starting point, but for large projects or unusual terms, have a lawyer review yours, since rules differ by state and country. If you lead with an estimate, our guide on how to write an estimate covers what to include.
Take a deposit
A deposit confirms the client's commitment and keeps you from working for weeks on credit. For new clients and fixed-fee projects, 30% to 50% upfront is common. For larger projects, split billing into milestones. On a $6,000 project, that might look like:
- 40% to start: $2,400, invoiced when the agreement is signed
- 30% at first draft: $1,800, invoiced when the draft is delivered
- 30% at completion: $1,800, invoiced on final delivery
Send the deposit as its own invoice, and start work once it's paid. It's a common, reasonable practice, and it sets a professional tone from the first invoice. Clients who work with freelancers regularly will expect it.
Manage scope creep
Scope creep is the gradual addition of unbilled work: one more page, one more revision, one more quick call. Each request seems small. Together, they can turn a profitable project into an unprofitable one.
- Define the scope precisely. "Logo design with three initial concepts and two revision rounds" is clear. "Logo design" is not.
- Name the price of extra work upfront. For example: "Additional revisions are billed at $95 per hour."
- Acknowledge requests in writing. "Happy to add that. It's outside the original scope, so I'll send a quick estimate for approval."
- Bill for it. Add approved extras as separate line items on the next invoice, so the client sees exactly what they asked for.
Track time, expenses, and invoices
Records you keep as you go are far more accurate than ones you reconstruct at the end of the month.
- Time: Log hours daily against each client and task, even for fixed-fee work. Over time, it shows whether your project prices are right.
- Expenses: Keep receipts for anything you'll rebill to clients or claim as a business cost.
- Invoices: Know what's been sent, what's paid, and what's overdue. Overdue invoices need follow-up; our payment reminder templates give you the wording.
- Schedule: Invoice on a predictable rhythm, at milestones for projects and on the same date each month for retainers. Recurring invoices can handle retainers for you.
Plan for taxes
Clients typically don't withhold income tax from payments to freelancers, so the responsibility falls to you. In many countries, that means making estimated tax payments during the year rather than settling up once at the end. You may also need to register to collect sales tax, VAT, or GST, depending on what you sell, where your clients are, and how much you earn.
Because the rules depend on your country, state, and business structure, talk to an accountant early, ideally before your first tax deadline. One habit helps regardless of where you live: when each payment arrives, move a fixed percentage into a separate savings account, using a percentage your accountant recommends.
Send your first invoice
A good freelance invoice is specific, prompt, and easy to pay. Pick a layout from our freelance invoice templates, or build one in the free invoice generator. If you're new to invoicing, start with how to make an invoice.