Freelancing can be very rewarding. Every day is a hustle, but it’s worth the effort, because you’re hustling for yourself, rather than a boss you hate or a company you don’t believe in. One of the most important things you can do as a freelancer is set up an invoicing system that works in order to make sure that you a) accurately bill your clients, and b) have a reliable system for reporting your income to the IRS.

The first step for setting up an invoice system is tracking your billable hours, even if you are billing clients on a flat rate, rather than on an hourly basis. (I’ll explain why later.) There are computer programs that you can purchase to do this for you, but I’m a cheap skate. I use a simple Excel spreadsheet that has the following columns: date, time, client, description of work performed, billable hours, client total, and billing status.

The description of the work performed can be brief, but you should be able to explain (at least to yourself) what you were doing on any given day. For example, when I’m working on a monthly newsletter for one of my clients, I might have the following description entered on the spreadsheet: update contact list, template design.

The billable hours column should list the total for each entry. At the end of the month, sort the spreadsheet by client, then by date. Use the auto sum button to calculate the total for each client. That number gets entered in the the client total column.

Billing status is important. This is where I say how much I billed the client for, and what the payment status is. For example: billed client for 20.0 hours – outstanding; or billed client for 20.0 hours – PAID. When payments arrive, I update that column so that I can keep track of who has paid me, and who hasn’t.

Creating an invoice for the client is a simple process. Microsoft Word has several free templates that you can use. The invoice should have the following information: invoice number, your business’s name and contact information, invoice date, due date, client name and address, description of services performed, rate charged, taxes, total amount due.

Now remember how I said I track my hours, even when I charge a client a flat fee? There are a couple of reasons for this. First of all, I need to know how much time I spend on every project that I do, primarily for time management purposes. I’ll be going more in depth about time management later in the freelancing series, but if it takes me 3 hours to research and write an article that I’m only getting paid $25 for, I’m getting robbed. I either need to find ways to be a more efficient researcher and writer, or I need to ask for more money.

Secondly, remember my case study from last week, where I talked about not being able to bill a client for work because of the way my letter of agreement was written? If I track my hours, I can write this off as a loss when I file my taxes. But I need to be able to document that work was performed that wasn’t compensated.

If you’re a freelancer, how do you document your time and bill your clients? Do you use a computer program to invoice your clients, or have you taken a DIY approach like I have? I’d love to hear about what you do to make sure that you’re getting paid.