Why Freelancers Should Issue Late Fees to Clients

Late payments are usually major issues for freelancers, and no matter what the terms of the agreement are, most of them will experience late payments from clients at one point or the other. So the reason why freelancers should issue late fees is , that even as I am writing this, I am owed over £3000 from my clients.

Well, I can certainly live with a few invoices getting delayed, but what happens if the sum gets even bigger?

This would significantly derail my plans for settling my bills and other money-related responsibilities.

Of course, we understand that most freelancers out there are in stressful situations where they keep trying to keep track of their clients and following up on the payments, and this shouldn’t be the case at all.

A client is supposed to pay you on time, immediately work is done, and if they may have some disputes about the payment, this should be settled as soon as possible, and payment remitted once it is done.

So, if this is the “norm,” then what is the solution?

Well, as a freelancer, one of the options available to you would be to apply some strict late payment fees for all late invoices or ensure that you take full payment upfront.

I know that you think this is easier said than done, and you really do not want to charge your clients a fee for late payments since you do not want to lose them, and again, which client will agree to an upfront payment before work is delivered? Probably none, or very few.

But, if you have a client who consistently pays late, I guess it’s about time you re-evaluated this relationship as you are not benefiting from it, and it essentially costs you money.

The road less travelled – charging late fees for your clients, is probably the best option for you.

So, let’s get into it.

Table of content (o/c)

How can the late fees to a client be applied?
Why do freelancers get paid late?
Can freelancers’ issue late fees?
Why are late fees important?
How does late payment affect freelancers?
The late payment legislation for freelancers

How can the late fees to a client be applied?

The law states that a payment is “Late” when it exceeds the agreed payment date by just one day. If the rules are not set, you should expect payment 30 days after issuing an invoice or delivering goods and services, whichever one is later.

When writing this guide, the statutory interest rate that applies to late payments is currently 8% above the base lending rate of the Bank of England. However, this is on a business-business relationship.

Please note that you are allowed to stipulate different terms in your contract, e.g., you could charge 5% per month or part of the month for late payments, which adds up quicker than a statutory rate that usually amounts to charging pennies.

The next charge is the debt recovery fee, generally charged between £40 and £100, although it depends on the amount owed.

Why do freelancers get paid late?

There are many reasons why clients pay late; they could be busy, which is common with most companies, or suffering from bureaucratic slowness, which happens in large organizations, where payment must go through various stages before its bid.

You could also have a client for a bully who sees freelancers as powerless people who do not need to be paid on time. As a freelancer, you could also be part of the problem, especially if you do not enforce any strict rules and guidelines for payments.

Here are a few other reasons why clients pay late:

The client is probably not motivated to pay you.

Most freelancers still give away too much before a commitment; they will fully deliver the job before asking the client for any obligation to payment, such as an advance payment or an instalment.

Most clients will not intentionally want to leave without paying you after delivery of the services, but once you deliver, then they are likely to become unmotivated to pay.

Here’s how you can solve this problem:

Send an invoice even before the work starts

When you send an invoice before the project starts, you will not have to wait for the payment to start, although you are at liberty to do so. Sending the invoice lets the client know that you care about the payment and hope it will be made on time.

Hold off on the final deliverables until after the payment has been received.

Hold back before sending the final files until the payment has been processed. You do not want to become an annoyance to your clients, but you need to be paid for your work.

So, consider holding off a portion of the work until the client makes payment or sends you a commitment in terms of part payment. One thing you could do in this case is send them a redacted image file or a watermarked image so the client can view but not use it.

It is essential to keep in mind that you should only do this under clear and honest communication with your client.

Give your client a heads up that they will need to do a pre-payment of the invoice before you can proceed and that you will not be able to deliver all the final fines until they pay you.

The goal here is not to make your client angry or create an enemy, and you are simply trying to ensure that you get what you are owed.

Your client simply “forgets.”

If you take a minute and think about it, a client forgetting to pay an invoice does make sense to some extent, especially if they are dealing with lots of freelancers at the same time. Still, it doesn’t make it less infuriating.

That small invoice payment of, let’s say £/$500, means a lot to you, even though it probably doesn’t mean much to them.

To solve this problem:

Set up some regular reminders for the client

If you have a good-hearted client, then you will need to send them some friendly reminders.

You can set these up manually if you like. Still, you run the risk of forgetting yourself, so making automated reminders such as using an invoicing tool like Bonsai or FreshBooks will help you keep updated with your invoices.

Charge them a fee for late payments, or a reward for early payments

In addition to the regular reminders, you may also try experimenting by instituting a late payment reward whenever they pay on time, such as a bit of discount or extra services for free.

This will also require you to have honest and upfront communication with the client to understand what sort of rewards they will receive.

As we have explained above, you could also charge them a fee for late payment, as this is covered under the “Statutory Interest Charges.”

You could be communicating with the wrong person.

If you are working with a large company, you may have the wrong contact. For example, you talked to someone who doesn’t make any payment decisions or is not authorized to negotiate with freelancers.

In such as case, your invoice is almost certainly going to be late.

To solve this issue, here’s what you should do:

Find out who you should talk to

During the initial discussions about the project, ensure that you get the name of the person you should be talking to, especially the person in charge of finances and paying freelancers. This will make it easy for you to get the correct information and get paid on time.

Also, please make a point of figuring out who is responsible for invoice payments at your client’s company and make initial contact by sending them an invoice and email. Make this person your friend and always stay on their good side.

Your client could be ignoring you deliberately

Being ignored is one of the most challenging and stressful situations of all. Your invoice is not getting paid because the client is ignoring you.

Being ignored is a bitter pill to swallow, as you wonder why? Why would the client ignore me, yet I did the job to their satisfaction? It will force you to come to terms with the realities of life and wonder to yourself.

Did the client dislike my work?
Did they run out of money?

If you were careful enough to follow some of the advice we gave above, such as requesting early payments, or a down payment, or even waiting until the last minute to deliver the final files, then you would have a much easier time.

So, if your client is ignoring you deliberately, here’s a few things you can do:

Identify the reason why they are ignoring your invoice

This is the first step. Please communicate with your client and find out why they are ignoring you. It may be challenging to find out, and you can start by going through all the previous communications with this client and see whether you can pinpoint where the problem could be.

If your client becomes unresponsive, they are probably just being mean or disappointed with your work. Still, in some cases, the previous conversations will help open your eyes as to what exactly is going on.

Offer the client ultimatums and alternatives

This is the next step. Start by offering clients ultimatums or some alternatives. If you sense that they do not have money to pay the invoice, you could consider giving them a payment plan that would provide them with time to complete the payment of the invoice, such as instalment payments, or pay using alternative methods.

If you notice that the client is not happy with your work, you could offer to re-do the job until both parties are satisfied with the work.

If these polite alternatives are not working, then you should send them ultimatums that range from contacting their superiors to sending letters informing them that you intend to take them to court.

Your client probably never saw the invoice

It’s hard to believe, but there is a chance that your client did not see the invoice, which could be why they did not pay. If they are running a tiny but busy business, this is a real possibility, and it could be buried in a whole pile of unopened emails.

To solve this problem:

Immediately contact the client

Even if you do not know the issue, contact your client immediately after the invoice is late to remind them that you did invoice them and that you would appreciate them paying you as soon as they see the invoice.

You could also call or text them to tell them that the invoice hasn’t been paid yet.

Make it clear

There is no need to be cute or creative when it comes to sending invoices. You either mail it or fax it and let the body of the email read “INVOICE.” In big, bold letters.

Can freelancers’ issue late fees?

Yes. As a freelancer, you should and can issue late fees, and this is usually more than enough of an incentive for you to get paid.

You should never give up on getting paid. If you have done the job, then the client must pay.

Anything else is wrong, and they are in breach of the agreement you made at the start of the project.

So, why don’t freelancers’ issue late fees to clients?

Well, freelancers depend on their clients for survival. Charging them anything other than the original agreed-upon payment may bring up unnecessary strains in the relationship and may lead to the loss of the client.

So, although late fees are one of the ways that freelancers can ensure they are paid, it is not always applicable.

Genuine clients will be apologetic when they miss a payment and will even agree to pay the additional charges, as it is the law after all.

If you do receive a negative response, then it could indicate that the client neither values nor respects your work, and you have a much bigger problem on your hands.

Why are late fees important?

Other than using late fees as an incentive for clients to pay, they are always a good idea for many reasons such as:

The fact that you DO need your money

Yes, you need the cash. Besides, you did the job, and you need to be paid for it. Bills need to be paid, and really, there shouldn’t be any explanation as to why you need the money. Late payments fees will help some clients pay you sooner.

The mere idea that you will be charging late fees is enough of an incentive to motivate your client to pay you as soon as possible.

It establishes your job as a professional

When you do not include such charges as a policy for your business, you perceive the client that you do not care about your work and are allowed to pay you the way they want to.

You will get paid before others

Of course, a client who pays you late is probably paying other contractors late and establishing that you are likely to charge a fee for late payments will make you stand out and cause the client to pay you first before others.

56%of freelancers surveyed said they had experienced late payment

Souce: ipse.com

How does late payment affect freelancers?

It is common for you as a freelancer to get paid late, and when this becomes a recurring issue for most of your clients, you certainly have a significant problem on your hands.

Of course, dealing with overdue payments is an inconvenience to you, but there are many other problems associated with this, such as:

Causing you to lose focus

When you chase one late payment after another, you tend to concentrate on that and not on your other clients, which means you are putting your other jobs at risk.

You will be stressed and depressed as to why the client is not paying. Being distracted means that you will not notice problems with your other clients when they come up.

It puts you in debt

When you cannot meet your responsibilities because you lack the finances, you are likely to resort to borrowing. You will then find yourself in debt to inject some money into your expenses.

This may work initially, but with time, it will get worse and worse, and you will find that you have reached a place of no return when the payments accumulate.

They affect other opportunities

Since you are experiencing late payments repeatedly, you will become too engrossed in following them. You end up losing other opportunities due to this since all your attention is on getting paid for work you have already done.

The late payment legislation for freelancers

For Freelancers, the late payment legislation allows one to charge interest for late and unpaid invoices at a rate of 8% above the Bank of England’s Base Lending rate.

Additionally, the law further entitles you to compensation for any additional costs incurred in the process of recovering the invoice as follows:

For invoice amounts up to £999.99 charge is £40.00
For invoice amounts between £1,000.00 and £9,999.99, the charge is £70.00
For invoice amounts amounting to £10,000.00 and more, the charge is £100.00

Now, this legislation does preclude all freelancers from framing their contracts around the law, and for clients who wish to keep working with you, paying a late fee is not an issue for them.

It is, however, advisable that you think very carefully before deciding to charge the late fee to the clients or taking the legal way when trying to recover an unpaid invoice.

Conclusion

Late payment fees always depend on the freelancers, even though the law supports you on this.

Getting paid on time seems to depend on:

Ensuring that you agree on ALL the terms and conditions before you start any project.
Monitoring your payment systems regularly to keep track of timely payments.
Having a sound system for dispute resolutions
Fostering good working relationships with your clients through constant communication to inform them of the payment procedures.

About the Author: Thomas Minarik

Thomas is the co-founder of brodmin and has been an online entrepreneur since 2010. His passion has always been helping small business in all aspects of online marketing. Now he is trying to lead a revolution of the late payment culture. Follow him on @realbrodmin and LinkedIn

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