A freelancers guide to creating a virtual accounting department

Talking about money between friends, family, and freelance clients can be tricky. 

As a freelancer, you can get pretty cozy with your clients. But, when it comes time to pay an invoice, especially a past due invoice, it can be hard to change your tone and have those tough conversations. 

Large companies benefit from having dedicated accounting departments to handle invoicing. These departments can separate themselves from the delivery of the work to strictly money matters. So when an invoice goes unpaid, Beth over in accounting can send a cold hard email without it affecting the rest of the team's relationship with the client. 

Unfortunately, as a freelancer, you have to wear all the hats. Like all the other jobs, this one falls to you too. And it's an important one because it's what gets you paid. 

Luckily you can set up your freelance business with a virtual accounting department and offload some of this work to an intelligent system that streamlines your invoicing process.

What is a virtual accounting department? 

A virtual accounting department is a system you create that facilitates your invoicing and payment collection with little direct involvement. It's a process that can handle the customer journey from the initial estimate through invoicing, payment, and occasionally invoice recovery. As a result, the virtual accounting department can save you time, streamline your cash flow, and simplify difficult client communication. 

How to set up a virtual accounting department

Spin up a new email address

Step one is easy, and anyone can do it. Simply create a new email address for your accounting department. 

Standard email addresses are accounting@yourdomain.com or invoicing@yourdomain.com. 

By creating this email, you move all conversations about money to a dedicated channel. Communication from this new account can be more formal, direct, or hard-edged when needed—allowing you to continue a friendlier tone in your direct relationship.

Bonus: Some freelancers go as far as creating a fake persona to run their virtual accounting department. A manufactured persona allows you to reference a person, "Oh, talk to Susan in accounting," and sign your communication using a real name. It can create more of a partition between your direct client communication and the accounting relationship. Additionally, it makes the illusion that your company is more extensive than it is. Doing this has pros and cons, and only do this if you are comfortable with it. 

Capture all billing information upfront 

A clear understanding of your client's business structure and process makes invoicing more straightforward. 

For example, who do you send invoices to? Who pays the invoice? What are your client's reconciliation periods, and whom do you contact if there is a billing issue? These questions can help you establish your financial relationship effectively with your client. 

An easy way to collect this information is to set up a new client intake form or standardized email. You can do this using Google Forms, Typeform, or any other form collector. Then, send this at the start of any new project and save it in your accounting system of choice. 

Now you're set to ensure all your communication is going to the right people at the right time, and you'll be in a better position to apply adequate pressure if necessary. 

Establish clear payment terms

To run your virtual accounting department smoothly, you need to set the right expectations with your clients. We can start with your payment terms. How and when do you expect to get paid?

You should state your terms in your estimate, proposal, or statement of work and have your client accept them before starting work. Doing this gives your customer no excuses to follow them.

Some everyday things to add to your payment terms are:

  1. Your payment date - Typicallynet-30 or 30-days after the receipt of the invoice, but you can choose to alter that window. Or use another method such as payment on delivery (POD), payment in advance (PIA), or end of month (EOM). 
  2. Your payment details - This usually includes your contact information, preferred payment methods, and preferred currency.
  3. Other payment terms - Here is where you can outline things like early payment incentives, late payment fees, or debt collection thresholds. 

Setup an automated invoice timeline and reminders

The next step is to set up an automated communication sequence for your invoicing process.

Most accounting software can send invoices via email and send reminders when the invoice goes unpaid. You can customize these emails to send from your new accounting@ or invoicing@ email. Next, you should update the email text to be more direct and from your accounting department. Finally, you can be forceful in tone as the invoice goes further past due. 

It's essential to start the invoicing process immediately after completing the work. If you don't invoice and send payment reminders promptly, there's a good chance your customers won't pay on time. If you've got a lot of invoices and reminders to send, automating the process will save you valuable time.

Move recurring clients to automated payment schedules

If you have clients who regularly use your services on a scheduled or ongoing basis, it might be time to move them to automatic billing. For example, wouldn't it be nice if your client automatically paid every month, no invoicing required?

Setting up a direct debit or automatic payment could benefit all parties. 

For your customer, this can reduce their administrative burden, help them predict their cash flow, and minimize awkward conversations with you.

For you, all the benefits above apply, plus this means getting paid on a routine schedule without continuously needing to hunt down overdue invoices.

Move overdue invoices to an automated debt collection service

Hopefully, your virtual accounting department has streamlined your invoice process so that all your clients pay on time, every time. 

Even if you've done everything right, there is still the occasional delinquent invoice. As a freelancer, the last thing you have time for is chasing down a client for a significantly outstanding invoice. These are often the worst conversations because the client is unmotivated and possibly unwilling to pay. 

If you've hit this wall, it might be time to escalate to a third party like InvoiceRecover. InvoiceRecover is an automated debt collection service that collects delinquent invoices and saves you hours chasing down payments. Bringing in a third party on your behalf lets customers know you're serious and increases the pressure to pay. 

Freelancers are commonly frustrated by the invoicing and payments process and often left waiting on clients to pay or stressed because they forgot to send an invoice on time. However, these pitfalls are easily avoidable. Creating a virtual accounting department can be a great way to standardize your process and ensure you are running your freelance business as efficiently as possible. 

Get your overdue invoices paid.

“I got an invoice paid that was six months past due. I thought it was lost, but InvoiceRecover collected!”
Ben De Rienzo
Freelance Designer