Life as a freelancer can be challenging. One of the biggest challenges is in managing cashflow and finances. Many freelancers mix their business finances with their personal finances (which can make things difficult at tax time).
Here’s an easy way to set up a separate account for freelance – related expenses (and income): use a reloadable prepaid debit card as your business bank account.
Thanks to advances by card issuers and service providers, today’s prepaid debit cards can act as a replacement for many bank accounts. There are several types of prepaid debit cards including: “open loop” and “closed loop” cards. A closed loop prepaid card is merchant specific and can only be used when shopping at that merchant’s location (for example, a Wal-Mart prepaid card can only be used at Wal-Mart stores).
An “open loop” prepaid card, on the other hand, is associated with a certain electronic payment network (such as Visa, MasterCard, American Express, or Discover). You can tell if a prepaid card is an “open loop” card by looking at it does it have the logo of Visa, MasterCard, American Express or Discover on it? If so, it is likely an open loop card. So long as you have sufficient funds on the card, you can use the card at any retailer that accepts cards from that network. Many “open loop” cards are “reloadable”. That is, you can add more funds to the card. Further, many reloadable cards come with a number of features that make the card function just like a checking account. For example, many reloadable prepaid cards allow you to use on line bill payment, set up direct deposit, access funds at ATM machines, etc.
For many freelancers who don’t have separate business bank accounts, a reloadable open loop prepaid card can be a great way to manage your business finances separately from your personal finances. The key is to find a prepaid debit card that matches your business’ needs while charging low fees.
A number of great prepaid debit cards are on the market that work perfectly for freelancers. For example, the Green Dot MasterCard provides a great combination of low fees and great features.
Here’s a way that we use prepaid cards as a freelancer. First, when a large consulting or freelance project arises that will last for a number of months and that will have separate expenses related to it, we open a new prepaid card account specifically for that project and deposit funds into it that will let us complete the project (if we get paid in advance for the project, we use those funds to load the card).
When project-related expenses arise, we use that card (and only that card) to fund the expenses. This helps us budget for project-related expenses and makes sure we stick to our budget. Many card issuers provide great reporting and balance checking tools to make it easy to keep the account balanced (for example, many cards have SMS and email to alert you when your card has been used).
When the project is over, and if there are additional funds remaining on the card, we simply withdraw the funds (at an ATM or using PayPal) and close out the account. We make sure to download the project expenses into Quickbooks to give to our accountant at the end of the year.
The result is a simple, accurate and reliable way to stick to a project budget and track expenses that are associated with that project.
Some companies that pay freelancers have started to issue cobranded prepaid debit cards issued by companies like Payoneer. For example, Payoneer has teamed up with iStockPhoto to provide the iStockPhoto Prepaid Debit MasterCard which allows photographers and designers to receive their compensation from iStockPhoto as a direct deposit onto the prepaid MasterCard issued through Payoneer.
Other types of freelancers can also get their payments sent directly to a prepaid debit card. For example, oDesk and Elance both provide an option to receive payments onto an oDesk prepaid MasterCard as well as an Elance Prepaid MasterCard (respectively). Both of these cards are also issued through Payoneer.