Clients don’t pay on time.
Research indicates that more than 40% of freelancers face problems getting paid for the work they do. They also waste a lot of time trying to get payment for the invoice, which is due. Typically they are spending one week following up with the client and get paid for the work done. Many of these non-paying clients are dishonest and have cheated on other freelancers. However, some of the clients may not be able to pay on time for legitimate reasons. Freelancers should know how to distinguish between these clients and handle them differently. Some tips on handling clients who do not pay on time and charging late fees are discussed.
How to Charge Late Fees on Invoices
Charging late fees on invoices can be done by specifying a late fee in your contracts and on your invoices. A typical late fee is 1.5% of interest per month after the payment due date. Even though the amount sounds small, it’s an incentive for clients to pay up sooner rather than later.
Non-payment
Non-payment is a major issue for freelancers because there are no labor laws to penalize non-paying clients, while companies that do not pay their employees are criminally liable. Often freelancers work without a contract, making it extremely difficult to initiate legal action against the client. Since freelancers are paid for their time, they cannot afford to waste time collecting the payment. They often cannot afford to hire a lawyer. Freelancers also may not know how to collect payment from the small claims court, and there is a limit to how much money they can collect. Collecting the payment is also time-consuming after winning the case.
Non-paying clients
Non-paying clients can be classified into four different categories.
– Nonpayers with a legitimate reason. Some clients are unable to pay because they have a legitimate reason, like cash flow problems. They will promise payment later.
– Unhappy nonpayers are not happy with the work done or the freelancer and with no pay until the dispute is resolved. They may wish to pay a reduced amount. The freelancer may accept the decision or dispute it, depending on his relationship with the client.
– Serial nonpayers are clients who have cheated and exploited many freelancers who made the mistake of trusting them.
– large corporations have payment policies to improve their cash flow. They often pay after 90 or 120 days, and freelancers get the lowest priority, having to wait for many months to get paid.
What is the standard late fee on an invoice? Usually, 1.5% interest monthly on the amount overdue can ensure invoices are paid on time. So the standard late fee percentage is from 1.5% to 2%.
Tips for ensuring prompt payment
Some tips for freelancers to prevent non-payment and late payment are given below.
- Have a payment policy for invoices, and negotiate a reasonable time frame for payment
- specify a late fee, usually 1.5% interest monthly on the amount overdue, ensuring invoices are paid on time.
- Include the terms for dispute resolution in the contract for nonpayers who are unhappy with the work, especially for clients in a different jurisdiction.
- Send the dated invoices immediately after the project is complete, specifying the late fee
- use online time tracking and invoice programs, which will help if the freelancer takes the client to court to resolve the non-payment
- have a follow-up system, sending emails, phone calls, and hiring a lawyer if necessary to send a letter, make a phone call
- small claims court may help, though there are limits on the amount collected in the court.
Freelancers will send an invoice to their clients after they have completed the work. Yet, they often find that on the invoice due date, they have not received the payment. This is very stressful for the freelancer who does not know if the client will pay and when the payment will be made since he usually has many expenses. Most freelancers will contact their clients repeatedly, asking them about the payment due. However, often the freelancer finds that the clients are making various excuses, and they can only wait. Following up with clients who do not pay on time is one of the worst aspects of freelancing.
Late fee guide
However, a freelancer can use some very effective methods to ensure that their clients pay on time. Some freelancers offer a discount to their clients if they pay on time; one of the simplest ways to ensure that clients pay the invoices due promptly before the due date is to charge late fees when clients don’t pay on time. Some tips on how a freelancer can charge late fees for clients who do not pay the invoice on time are discussed below.
The late fee should be specified in all the freelancer’s contracts with the client and the invoices. Though the late fee is typically not very high, at 1.5% monthly interest on the amount due after the due date, it is an incentive for the client to make the payment before the due date.
- Ensure that the invoice clearly specifies when the payment is due, the actual date. The invoice should include the date when it was sent and the client’s information for making the payment on time, like the contact information, payment-related details, the services provided by the freelancer, tax id number. Usually, most invoices are due 15, 30, or 60 days after the invoice date.
- The invoice should be sent immediately after the freelance work is completed. Both an electronic and paper copy should be sent.
- If the freelancer does not get paid on time, they should send another invoice, including the late payment fees. The second invoice should be specified that the invoice was due a month or earlier. The freelancer should follow up continuously until the client pays the amount due or agrees to a plan to make the payment to the freelancer.
- If the client refuses to pay the freelancer despite his best efforts, he should consider other options. Depending on the amount due, he can hire a lawyer who will call the client or send a letter. Alternatively, the freelancer can hire a collection agency to collect the client’s amount or take the client to the small claims court to resolve the dispute.
- for clients who are located in New York City, the freelancer may be able to file his claim under the law Freelance is not free
After leaving Wells Fargo Bank in 2014, Daniel began a career as a finance consultant, advising companies and individuals on economic policy, labor relations, and financial management.
At Nimblefreelancer.com, Daniel writes about personal finance topics, value estimation, budgeting strategies, retirement planning, and portfolio diversification.
Read more on Daniel Smith's biography page.
Contact Daniel: daniel@nimblefreelancer.com
