It is not less than a miraculous stroke of luck if a business gets paid on time or beyond belief if the payment is received before the due date. But the cold hard truth is getting paid for the services rendered is simply a long wait that often ends in disappointment. You, as per your commitment, deliver the products or services to your client on time but in return, you are rewarded with late payments. Is that a good deal?
Time is money for most businesses (especially freelancers and small businesses). So you need to understand that late payment is a professional hazard that can have a really bad impact on business growth.
Over 42% of freelancers struggle with late-paying clients and nearly two-thirds of the small businesses are hurt by unpaid invoices.
Is there anything that could be done to get rid of the curse of late payments?
Yes, charge late fees.
This sounds tempting but at the same time a bit awkward too, isn’t it? However, if you look at the bigger picture, it is a viable option. Even major service providers like electricity, telecommunications, cable operators and many of them charge late fees, so you won’t be doing something otherworldly.
Is charging late fees the best way to ensure timely payment from clients?
Every business aims to be customer-friendly and that is why most of them take a back step when it comes to charging late fees and eventually compromise with delayed payment situations. Freelancers and small businesses somewhere fail to understand that just like customer relationship even cash flow is crucial.
Who likes to pay extra money??? Charging late fees works like a smart strategy where the customers in the fright of paying extra would prefer to pay on time. It also shows a sense of urgency, due to which customers, understanding your necessity would pay on time.
Rather than those awkward follow-ups with customers and struggling to carry out even regular business due to insufficient funds, charging late fees is always a good option.
Will charging late fees get you in some legal trouble?
Wondering is it legal to charge late fees? Don’t worry, it’s completely legal. You just need to follow some guidelines to ensure you don’t get into legal trouble. For example, you cannot charge some hefty fees. Of course, it’s common sense, avoid going out of the way. Be reasonable, charge what’s fair in accordance with your invoice amount.
Take your country or legal laws into account and the rest you need is common sense. Like, if a project invoice states $3000, it is reasonable to charge $45 to $60 as late fees. But, if you charge $200 for services provided and additionally charge $100 as late fees then is completely unjustifiable and could turn out to be illegal too.
Another point to take into consideration is to notify clients about your late fee charge. Suddenly, you cannot ask your client to pay an additional amount. Legally, it is advised to let your client know in advance about the late fee you would be charging. Better, mention it in your terms and conditions policy and even in the contract. Also, the client first reads and then signs the document. Just do it the lawful way to be safe.
When to charge a customer with late fees?
Directly hitting customers with late fees, especially without mentioning it in the agreement/contract is a wrong move. This could ruin your relationship with customers. In some scenarios, you might have to be flexible with your customers.
When you inform your customers in advance that you are charging fees on late payments, they will be aware of what can happen if they don’t pay on time. However, before imposing the late fees, it is better to look over the situation. Be sure, the client is aware of the fees and if they have any problem, they can freely communicate with you. If you feel their condition or reason for not paying on time is genuine, you can just let go of the late fee charges. This can help in making your relationship strong with the customer.
Though there are few customers, who might right away refuse to pay the late fees or just act rude. Despite the prior notice, if this is how they respond, you might have to be a bit harsh and deal with the late payments in a different way before it becomes a recurring issue.
Hence charging late fees, predominantly depends upon the client’s situation and response. Be flexible and take the right call. Why are you charging late fees should be properly conveyed and justified.
How much late fees should be charged?
When it comes to deciding late fees, the first to consider is the state where you live. Check the interset rates with your local laws and accordingly decide the fees.
The second thing you need to consider is your motto behind charging the late fees. Do not forget that this move is to get the invoice payment on time and not to incur extra revenue or bonus. Apparently and lawfully keep the charges reasonable.
Service-based businesses, small businesses and even freelancers can follow the common technique of charging fees on delayed payments – 1.5% of interest rate per month on unpaid invoices.
For example, if the client invoice states $3500 then as per 1.5% per month, the additional fees calculation would be:
3,500 x 1.5% i.e. 3,500 x 0.015 = 52.5
That means an additional $52.5 will be added to the invoice total as late fees.
Is there any other way to ensure clients pay on time?
If you think enforcing late fees is not your style then you can try other alternatives to make sure you get your money for the efforts on time.
Send payment reminders
Payment reminders are often treated as an afterthought and also instead of sending it before due date most of the businesses send it after the client fails to pay on time. Make it a thumb rule to send the payment reminder in advance. Due to any reason, the client may fail to remember the due date, make it a duty to remind them in advance. Sending polite payment reminders email most of the time save you from delayed payments.
Offer convenient payment options
Expand your payment options, just don’t stick to one or two. The more payment options you offer, the more client feels convenient. Offer every type of payment method like cash, cheque, credit card, debit card, electronic ways. Also integrate payment gateways as it encourages prompt payments.
Switch to online invoicing
Right from sending automated payment reminders to encouraging customers to make instant payment with multiple payment options, online invoicing software offers a lot of benefits that will ensure in timely payments. Professional invoices can be created and sent in less than 60 seconds. You can invoice on the go and let customers pay you anytime from any device with cloud-based invoicing software. This can surely speed up your payments.
Now that you know through and through how to manage late payments, follow the method which you feel convenient and receive invoice payments on time.