True for all contracting work, your individual terms should be included on your invoice in addition to your general rates. An invoice template for an independent contractor who provides multiple services might include a breakdown of their charging process. For example, they may charge a specific hourly rate as well as a separate charge for materials needed to complete the service. As a general rule, you'll want to be as clear and detailed as possible when preparing your invoice.
A standard contractor invoice format should include space for:
As an independent contractor, your taxes are not automatically deducted by your employer to comply with federal, state and city tax requirements. It’s important to remember that at the end of each year when you fill out a 1099 form, you'll be responsible for paying those taxes to the IRS. By making sure to include a line item for any applicable taxes, you guard yourself against withholding too little from your income and being unable to pay your federal, state and city taxes.
Remember to set aside at least 30% of your income to pay your taxes. Rates may vary according to state (and sometimes) cities, but you'll thank yourself later when you’re able to easily cut a check to the IRS to pay your taxes instead of dipping into your hard-earned profits and savings to do so. Additionally, consider making quarterly payments to the IRS to avoid having to pay your taxes all at once when tax season rolls around.
The ideal time to send an invoice varies by industry as well as preference. Invoicing at the beginning of the client engagement ensures you won’t be working for free, though it may be objectionable to a certain clientele. Sending an invoice after the work is completed shows trust on your end, but leaves you open to unsavory clients taking advantage of that trust.
A simple solution to the latter is choosing only to work with trustworthy clients. Go with your gut—your initial correspondence should provide you with sufficient insight into your client’s character.
Still, it is far from unreasonable to start the invoicing process at the beginning of the engagement. Since contractors often don’t have a larger company standing behind them, it can be customary to request partial or even full payment before your services are rendered.
As you develop experience and foster relationships with repeat clients, your invoicing process may evolve into a more relaxed but streamlined process.
At some point, you’ll want to consider automating your invoicing process. Be sure to check out Sage Business Cloud Accounting online invoicing to really streamline your whole operation.
Contractors are a special breed—the ability to set your own working terms is invaluable. But your independence also leaves you especially susceptible to the hard learning curve of good business practices. These tips from business owners and individuals like you can help you avoid some common mistakes.