As an IT freelancer you have freedom and a good rate, but you also carry risks you did not have in employment. No employer to catch you when things go wrong. Which risks are those exactly, and how do you make sure they do not take you down?
In this article I walk through the five biggest risks for IT freelancers, and above all how you protect yourself against them practically. Not to scare you, but because those who know and cover the risks run their business with much more peace of mind.
This blog is for IT professionals working or starting as freelancers who want to cover their risks smartly.
I work with IT freelancers daily and see which risks really play a role. This is general information; for your insurance and tax situation, consult an advisor or accountant.
Risk 1: idle time between assignments
The most common risk: you briefly have no assignment, while your fixed costs continue. Unlike in employment, there is no guaranteed monthly income. A few weeks or months without an assignment can add up considerably if you are not prepared for it.
You cover this with a financial buffer and a healthy assignment flow. Make sure you save for leaner periods, and build relationships that help you to follow-up assignments. An intermediary with a continuous flow of assignments for your profile reduces this risk, because you are less dependent on your own acquisition between jobs.
Risk 2: disability
If you fall ill or become disabled, your income falls away, without an employer who continues to pay. For a freelancer this is perhaps the heaviest risk, because it affects your earning capacity itself. Yet many starters push this ahead because it seems far away.
You cover this with disability insurance, a bread fund or a combination, depending on your situation and risk appetite. It is wise to think about this early, not only when it goes wrong. Want to know which insurance is relevant for you? Read our blog on the insurance IT freelancers need.
Risk 3: non-payers and late payments
You deliver good work, but your client pays late or not at all. As a freelancer that hits you directly in your wallet, and you have no payroll administration that absorbs it. Late payments can seriously pressure your cash flow, especially if your buffer is small.
You reduce this risk with clear agreements up front, proper invoices with short payment terms, and timely follow-up. If you work via an intermediary with the intermediary construction, payment often runs via that party, which reduces your payment risk. Know your client and be alert with new clients without a payment history.
Risk 4: being too dependent on one client
If you work long-term almost entirely for one client, you run two risks at once. If that client falls away, your entire income falls away. And it is a Dutch DBA Act signal: strong dependence on one client points toward disguised employment.
You cover this by spreading: work for multiple clients where possible, or alternate assignments. That makes you financially more robust and stronger under the Dutch DBA Act. Want to know whether you run a risk of disguised employment? Read our blog on the Dutch DBA Act risk for IT freelancers.
Risk 5: a rate that is too low or poor financial planning
If you reckon with a rate that is too low, or plan your finances poorly, you keep too little at the bottom line, even though your revenue seems healthy. Many starters underestimate how much of their rate goes to tax, insurance and non-billable time.
You cover this by building your rate well and planning your finances ahead, including reserves for tax and pension. An accountant helps you with this. Want to know what you really keep from your rate? Read our blog on what you keep net as an IT freelancer.
How do you address your risks as a whole?
Not in a panic, but systematically. Most risks are well covered with a combination of a buffer, the right insurance, spreading over clients and good financial planning. It is about deliberately arranging them instead of hoping it goes well.
A short checklist to cover your risks:
- Build a financial buffer for idle time and setbacks
- Arrange the right insurance, especially for disability
- Make clear payment agreements and follow up invoices on time
- Spread your work over multiple clients where possible
- Build your rate well and plan your finances ahead with an accountant
Those who have this foundation in order run their business with much more peace of mind. The risks of freelancing do not disappear, but they become manageable. That difference determines whether uncertainty chases you or whether you deal with it soberly.
Frequently asked questions about risks for IT freelancers
What is the biggest risk for an IT freelancer?
Disability hits you hardest, because it affects your earning capacity itself, followed by idle time between assignments. Both are well covered with insurance and a buffer respectively. The most dangerous thing is ignoring a risk because it seems far away; precisely then you stand unprotected if it happens.
Do I really need disability insurance as an IT freelancer?
That depends on your situation, buffer and risk appetite, but being unprotected is risky. If you drop out, your income falls away without a safety net. Insurance, a bread fund or a combination covers this. Discuss with an advisor what fits you; pushing it ahead until it goes wrong is the biggest danger.
How do I protect myself against non-payers?
With clear agreements up front, proper invoices with short payment terms and timely follow-up. Be alert with new clients without a payment history. If you work via an intermediary with the intermediary construction, payment often runs via that party, which reduces your payment risk.
Why is dependence on one client risky?
For two reasons. Financially: if that one client falls away, your entire income falls away. And legally: strong dependence on one client is a Dutch DBA Act signal toward disguised employment. Spreading over multiple clients makes you more robust and compliant.
How do I avoid keeping too little?
By building your rate well from your costs and desired income, and planning your finances ahead with reserves for tax and pension. Many starters underestimate what comes off their rate. An accountant helps you make a realistic picture and a healthy plan.
Conclusion: know your risks, and you run your business with peace of mind
As an IT freelancer you run five big risks: idle time, disability, non-payers, dependence on one client, and a rate that is too low or poor planning. Each one is coverable with a buffer, the right insurance, spreading and good financial planning.
For whom is this most urgent? For starters who have not yet covered their risks, and for those who lean heavily on one client. For whom less? For those who already have their buffer, insurance and spreading in order.
My advice: arrange your risks deliberately and early, not only when it goes wrong. Those who have their foundation in order can really use the freedom of freelancing, without uncertainty constantly tugging at you.
Want to spar about a stable freelance practice?
Want to spar about how to build a stable, well-covered freelance practice, with a healthy assignment flow? Plan a no-obligation call with me. I think along peer-to-peer. For insurance and tax matters, I refer you to an advisor or accountant.
Note: this article is general information, not financial, tax or insurance advice. For your personal situation, consult an advisor or accountant. Regulations around the Dutch DBA Act may change; consult rijksoverheid.nl or belastingdienst.nl.
