Why freelancers should issue late fees
Late payments are a top issue for freelancers.
No matter what the agreed payment terms, most freelancers experience late payments at some point. As I write this, I’m owed an invoice of £75 — from eight months ago.
I can live with a small invoice being delayed, but what if it’s a larger sum? A friend of mine was recently stung by a client who, having agreed seven-day payment terms, asked for a 5% discount in exchange for immediate payment (which my friend declined).
The invoice was subsequently paid 30 days late.
For some, late payment is a non-issue. As a web designer, I’m able to take upfront deposits and only release the completed work when full payment is received.
What’s the solution?
I’ve been thinking about how freelancers can improve the situation and I’ve concluded there are two options:
- Take full payment upfront
- Apply strict late payment fees
I know plenty of freelancers who successfully operate a full payment upfront system. They offer it on smaller jobs or retainers, but it’s not always possible.
This leaves us with the second option: apply strict late payment fees.
Where do you stand?
In the various threads I’ve seen about late payments, I’ve been struck by the number of freelancers who aren’t aware of the default late payment fees. Whether you stipulate terms on your contract or not, you’re due late payment fees the moment your invoice is overdue.
The fee is made up of two parts:
- Interest on the amount owed
- A debt recovery fee that is relative to the invoiced amount.
How to apply them
Fortunately, the Government has produced some clear guidelines on late fees.
Payments are deemed ‘late’ the day after the agreed payment terms. If these are not set, then it’s 30 days after you issue the invoice or you deliver the goods/service—whichever is later.
At the time of writing, the ‘statutory interest’ rate, applied whether or not this is specified in your contract, is 8% plus the Bank of England base rate for business-to-business transactions.
Note that you can stipulate different terms in your contract. For instance, my contract states a rate of 5% per month or part month. This adds up a little quicker than the statutory rate, which often amounts to pennies.
The final part is the debt recovery fee. This is between £40–£100 depending on the amount owed.
If you’re not sure what the amount will be for a payment you’re owed, check out dontpaylate.uk.
This is important: make sure that you send a separate invoice for the late payment. If you adjust the original invoice, this could cause issues if it goes to court, so send a separate invoice with the late fees.
Why don’t we use them?
Late fees are costly for business, and we don’t want to offend clients.
That said, late payment fees are the only way freelancers can make clients understand that late payments are not acceptable.
Clients who genuinely value your work will be apologetic about missing the agreed deadline. They’re also likely to be understanding of the additional fee (it is the law, after all).
If you receive a different/negative response, it’s an indication of a client that doesn’t respect you or your work. In this case, it’s certainly worth enforcing the fee.
Don’t forget: you can always waive a late payment fee if there’s a genuine reason for the delay.