Freelance Finance Glossary

Plain English definitions for cash flow, invoicing, taxes, and budgeting terms. Everything you need to understand your finances as a freelancer.

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1099 Contractor: A self-employed individual who receives a 1099-NEC tax form instead of a W-2. Unlike employees, 1099 contractors pay their own taxes, including self-employment tax, and are responsible for their own benefits.

Accounts Receivable: Money owed to you by clients for work you have completed but haven't been paid for yet. For freelancers, this typically includes unpaid invoices.

Balance Projection: A forecast of your future bank balance based on expected income and scheduled expenses. Balance projections help freelancers see potential cash shortfalls before they happen.
Billable Hours: Time spent working directly on client projects that you can charge for. Non-billable hours include administrative tasks, marketing, and professional development.

Cash Flow: The movement of money in and out of your business over time. Positive cash flow means more money coming in than going out. For freelancers, managing cash flow is crucial because income is often irregular.
Cash Flow Forecast: A prediction of your future cash position based on expected income (like pending invoices) and planned expenses (like rent and subscriptions). Helps you plan ahead and avoid overdrafts.
Cash Reserve: Money set aside for emergencies or slow periods. Also called an emergency fund or runway. Freelancers typically need larger cash reserves than employees due to income variability.

Deductible Expense: A business expense that reduces your taxable income. Common freelancer deductions include home office costs, software subscriptions, professional development, and equipment.
Due on Receipt: Payment terms indicating that payment is expected immediately upon receiving the invoice. Common for small projects or new client relationships.

Emergency Fund: Savings set aside for unexpected expenses or income gaps. For freelancers, the recommended amount is typically 3-6 months of expenses, though some prefer more due to income unpredictability.
Estimated Tax Payments: Quarterly tax payments required by the IRS for self-employed individuals. Due on April 15, June 15, September 15, and January 15 of the following year.

Feast or Famine Cycle: The common freelancer experience of alternating between periods of too much work (feast) and too little work (famine). Proper cash flow management and client diversification help smooth this cycle.

Gross Income: Your total revenue before any deductions or expenses. For freelancers, this is the total amount invoiced to clients before subtracting business expenses or taxes.

Income Variability: The degree to which your income fluctuates from month to month. High income variability is common for freelancers and requires special budgeting strategies.
Invoice: A document sent to clients requesting payment for completed work. Includes details like services provided, amounts due, payment terms, and payment methods.

Late Payment Fee: A charge added to overdue invoices, typically 1-2% per month. Including late payment terms in your contract can incentivize timely payment.

Minimum Viable Income: The bare minimum amount you need to earn to cover essential expenses. Knowing this number helps freelancers make decisions during slow periods.

Net 15: Payment terms indicating payment is due within 15 days of the invoice date. Shorter than Net 30, often used for smaller projects or established client relationships.
Net 30: Payment terms indicating payment is due within 30 days of the invoice date. The most common payment terms for freelance work.
Net Income: Your income after subtracting all business expenses, also called profit. This is different from gross income and is what you actually have available to pay yourself and save.

Overhead: Ongoing business expenses that aren't directly tied to specific projects. Examples include software subscriptions, insurance, and professional memberships.

Payment Terms: The conditions under which payment is expected, including when payment is due and any late fees. Common terms include Net 30, Net 15, and Due on Receipt.
Profit Margin: The percentage of revenue that remains after expenses. Calculated as (Revenue - Expenses) / Revenue × 100. Helps determine if your rates are sustainable.

Quarterly Taxes: Estimated tax payments made four times per year by self-employed individuals. Required when you expect to owe $1,000 or more in taxes for the year.

Rate Increase: Raising your prices for services. Recommended annually or when you gain experience, develop new skills, or have more demand than capacity.
Recurring Revenue: Income that repeats on a regular schedule, such as monthly retainers or subscription services. More predictable than project-based income.
Retainer: A recurring payment arrangement where a client pays a fixed amount monthly for ongoing services or guaranteed availability. Provides predictable income for freelancers.
Revenue: The total amount of money earned from services before expenses. For freelancers, revenue equals the total of all paid invoices.
Runway: How long you can sustain your business without new income, based on your current cash reserves and burn rate. Knowing your runway helps with financial planning.

Safe to Spend: The amount you can safely spend after accounting for upcoming bills, taxes, and savings goals. More useful than your bank balance for day-to-day spending decisions.
Scope Creep: When a project expands beyond its original requirements without corresponding adjustments to timeline or budget. Common freelancer challenge that affects profitability.
Self-Employment Tax: The Social Security and Medicare taxes that self-employed individuals must pay on their net earnings. Currently 15.3% (12.4% Social Security + 2.9% Medicare).
Solopreneur: An entrepreneur who runs their business alone without employees. Similar to a freelancer but may sell products or services at scale rather than trading time for money.

Tax Reserve: Money set aside specifically for tax payments. Freelancers typically save 25-30% of income for federal taxes, plus any state taxes.

Variable Income: Income that changes from period to period, as opposed to a fixed salary. Most freelancers have variable income, which requires special budgeting strategies.

Cashcast helps you manage irregular income with day-by-day balance projections, safe-to-spend calculations, and automatic tax set-asides.