Why should freelancers issue late fees?
Whether you’ve been at this business for a while or just starting, the fact is freelancers are going to encounter clients who don’t pay them on time. Your clients are going to be your main source of income, so you should do your best to ensure that they pay you on time. That’s where late fees come in.
By placing late fees in the contracts between you and your client, these fees can motivate folks to pay you on time to avoid the extra costs they’ll face. Getting paid promptly and regularly is your biggest concern if you’re a freelancer, and late fees are an important tool in your arsenal to ensure that. This is the definitive guide to how you as a freelancer should use late fees to make sure you get paid.
What is a late payment?
A late payment is exactly what it sounds like. It’s when a client does not pay within the agreed-upon period. Freelancer payment options are complicated because you have to be the one to pursue these late charges. Do you send friendly little reminders hoping that you don’t upset or alienate a customer, or do you hound them down for the money they owe you? It’s a complicated issue that we’ll dissect here.
The terminology explained
When you set up a contract with your client either for a service or a product, there’s an agreed-upon payment term that all parties agree to. These payment terms set the timetable that you expect to be paid, so if the agreed payment term is net30, then you expect to receive your payment within 30 days of sending your invoice.
There are several types of payment terms that depend on the circumstances of your deal, but what’s universal is that your client is to pay within that timetable. Once the client misses this payment table, then you’ll find yourself in the position of being a freelancer asking for payment.
Late payments hurt your solo business
While facing late payments is an unfortunate part of the freelancer business, it doesn’t mean that it is easy to deal with. Every year, thousands of small businesses go bankrupt in part because they simply don’t receive their payments. They cause you unnecessary financial burdens, administrative headaches, and put your cash flow at risk. To put it simply, late payments for freelancers restrict their ability to run their businesses.
Why freelancers should issue late fees
There are ways to try and coax clients into paying early. Some freelancers demand down payments upfront before they begin their projects. Some even offer discounts to clients who pay early to encourage payments.
You should use late fees to convince your clients to pay you on time. If the potential discount was the carrot, then late fees are the stick. Late fees work by adding growing charges on top of the total that you are already owed, meaning the client has to pay more. So if your client signed a contract that guarantees a 5% late fee interest, then every time your client misses a payment 5% of the bill is added to the total.
You should issue late fees because:
- You need the money and deserve to be paid for your work
- It sets an establishment for this client that it’s not okay to pay you late or whenever they want
- It means that your clients will be more likely to pay your charges or have to face more charges.
Remember, you did the work, so you should be paid.
How to set late fees as a freelancer
The way to set late fees is to put them into your service contract. When negotiating your contract with your client, both parties have to agree to payment terms that work best for them. A typical request for freelancers is 30 days after they send the invoice, so the client has 30 days to pay after they have received the invoice.
You can then establish a late fees clause, meaning your client agrees that there will be extra payments due if they missed the deadline. Should they miss the payment, they incur more charges. So, once they miss this payment period, you send another invoice that will have the new total that is due with the late fee included.
Why do freelancers need to learn how to issue late fees?
Freelancers need to learn about late fees because it can save their businesses. Ultimately, you depend on your clients paying you to keep your business afloat, and not receiving those payments are detrimental to your business. Late fees are a way to help ensure you get paid for your work and keep your operations going.
- Learn about the laws surrounding late payments
It’s important to educate yourself on the laws surrounding late payments because they can inform you on how exactly you can go about receiving the payment. It is important to keep in mind that these laws vary from country to country or even state to state, so business practices aren’t acceptable in another. This is especially important for considering international business deals.
For example, the EU passed a new legislation known as the Late Payment Directive in 2011. Some of its provisions include terms like a guaranteed cost in the form of compensation, guaranteed deadlines when private and public entities must pay before incurring late fees, and even the promise of statutory interest. This is just one example, so be sure to learn laws concerning late fees wherever you do business.
Figure out the services that can help you collect late payments
One of the tools that you can use is a service that serves as an intermediary between you and your clients. These service providers can handle these negotiations and payment issues with impartiality. Plus, they free you up from the hassle of having to deal with these issues so you can focus on running your business.
Ruul offers several features that can make your life as a solopreneur easier. With Ruul, you can create agreements that suit your business needs, issue invoices to your clients all over the world, and give your clients a number of secure options to pay you in whatever currency you prefer. Using Ruul is guaranteed to make the transactions between you and your clients simple and easy to manage.
Learn tips for issuing late fees
There aren’t many hard-fast rules when it comes to issuing late fees but we can offer some tips that give you a rough idea of what you can do.
- Have a late fee policy
Having a late fee policy is a good practice to have so that you can avoid haphazardly cobbling one together after the fact. Make sure that the proposed late fee is both legal and communicated to your clients.
- How much can you charge for late fees?
How much a freelancer can charge can vary depending on the laws of the area and what you agreed to in your service contract. A good idea to have though is that it should be reasonable, so $100 on a $1,500 total is okay, but charging $100 on a $150 deal probably won’t be acceptable.
- Inform your clients that there are late fees
You should make sure that your clients are aware that there are late fees attached to the contract by clearly communicating that fact during the negotiations. Also as the due date arrives, be sure to communicate this to your client so that there can be no mistakes.
- How long to wait before enforcing the late fees
One of the hardest questions for a freelancer is how long to wait for payment. In some cases, it could be as simple as sending an invoice with a late fee as soon as you can, but you should consider the situation.
If you have a good relationship with a client who pays on time regularly, then perhaps you might give them more leeway than someone who doesn’t. Talk with your clients and see why they haven’t made the payment and see if you two can come to an arrangement. Otherwise, you can start enforcing your late fees as soon as either your contract or the law allows.
How to deal with late payments as a freelancer?
Dealing with late payments is one of the most uncomfortable aspects of being a freelancer. It’s hard enough working on your own, let alone having to be your own legal team and trying to chase people down for payments. But, there are ways that you can manage these issues and get paid.
Why do clients delay payments?
Not every client that misses or delays a payment is an evil mastermind. While some customers would look to take advantage of you, many are just regular people that have unexpected expenses that come up that prevent them from paying. Or, they may need more time to gather the funds necessary. You should speak with your clients to see what’s going on before deciding to use late fees.
Set a time limit for payment
When negotiating your contract, make sure you set payment terms that work in both you and your client’s favor. The contract should satisfy both parties, and protect your interests. Setting reasonable payment terms is among these interests. Unless you set a due date for your payments, you’ll have a harder time navigating when you can begin assigning late fees on your invoices.
Make bulletproof freelance contracts
Making your service contracts concrete is the way to ensure that you are paid on time and communicate your expectations to your client. Here is where you can make sure that you explicitly state your expectations to be paid by your clients and lay down the terms of your possible late fees. Just make sure that your contract is complicit with local laws before signing it.
What to do if your client doesn’t pay on time?
So, you have set clear and concise payment terms, established to your client that there are late fees, and given your client ample warning as the due date approaches. Still, your client has not paid, so what should you do?
First, you should reach out to your client to see if your client intends to pay but issues are preventing them from doing so. If something cannot be arranged, then your next step is to begin charging them the late fees that were stipulated within your contract. Make sure you inform your client that you are charging late fees and will continue to do so until you are paid.
What to do if your client still doesn’t pay on time and you’ve already issued an invoice?
As a freelancer, you can impose late fees on a due invoice once the client has missed your payment terms. If they still choose not to pay you, another option that you can pursue is of course legal action. This is why it’s important to make sure the contract between you and your client is compliant with the law.
Having a compliant and legally binding contract will give you a leg up in any sort of legal action. That’s why it pays to be well organized and document all your transactions. Just make sure you have the time and resources to go to court if you decide on this option.
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