Getting paid when you’re self employed takes three steps:
- Getting your customers to pay you and giving them appropriate methods to do so;
- Paying all your business expenses and setting aside enough money to pay your taxes;
- Paying yourself.
Let’s look at each step in detail.
1. Getting Your Customers to Pay You
The way you take payment will depend on the industry you work in. But here are the main ways customers will expect to pay you:
- Credit card
- Bank transfer
You may need to offer your customers more than one way to pay you.
But regardless of which you chose, you’ll need to keep a record of what you have been paid for
Choosing a bookkeeping system that handles your billing and customer payments will make your administration much easier.
If you do need to invoice your customers and wait for them to pay you in your business bank account, then setting up a solid invoicing system will help you manage invoicing and payments.
2. Paying Your Business Expenses & Tax
Once you go self-employed, you’ll need to pay for all the bits and bobs you need to deliver your work. That’s things like:
- Web hosting
These all need to be paid so you can keep going and many come out of your bank by direct debit.
It’s important your customers pay you on time so you can pay all your expenses.
Then once you have covered your expenses you need to make sure you budget for your tax bill.
Your salary is not an allowable business expense.
What this means is one of your major costs of being
My best advice is to get a bookkeeping system that estimates your tax bill in real-time and set money aside each month.
3. Paying Yourself
Finally, once you have collected your money and covered your costs, you can pay yourself.
Some choose to pay themselves what is left. Others prefer to re-invest some money in their business or create a buffer in their business bank account.
Choose whatever works for you.
What you need to remember though is that if your customers don’t pay you, you won’t be able to pay yourself. This concept is what is known as Cashflow.