Late Payments - Fair Interest Rate

I have been put in the unfortunate situation of a client being 60 days overdue on their invoice.

I broke my own golden rule of not handing over the website until the final payment was received because I was working with a graphic design company who actually got the client. I figured it was a business to business relationship and because I was getting payment from the graphic design business and not the client, I thought I had minimal risk.

   Graphic design Company (deals with client)
   Me (web developer working for G)

Now the graphic design company is saying they don’t have the money to pay me until the client pays them. The money owed is about $2K, and the payment date just seems to keep getting pushed back. The graphics company already paid $2K as a part payment last month.

I would like your opinions on what is the best way to make this payment a priority for the graphic design company? I want to introduce a 10% per month late fee starting when an invoice becomes overdue by 60 days. Now that is what it is worth to me because I want my money when it is due. So 10% per month = 120% per year, is this too much to be demanding?

A side from charging an interest rate on the late payment when should I reposess the website. The website is pretty much half my work, of which half has been paid for, meaning it is a 1/4 of my work now.

I don’t want to burn bridges if I can help it because I plan on doing business with this company in the future, but with different payment conditions of course.


That’s definitely a tough situation. You were paid a deposit (thank God) and don’t want to ruin your chances of working with them in the future.

What were the payment terms in the contract between you and Graphics company?


As always, I would first ask what the contract specifies.


What is your goal with the 10%?

To put pressure on them to pay you? I think that charging 10% per month (an outraegous annual rate), could really sour your relationship with the company. If you value your business relationship with them, this probably won’t be a good idea. Reposessing the website is even more injurious because then you are interrupting a client revenue stream which not only totally ruins your chance of getting paid but it also throws the relationship and YOUR repuation out the window.

Consider their position. If you think they could easily afford to pay you but cannot, send them a message telling them that and ask them to pay you. Express your interest in doing business with them in the future, as you did here. See what they say.

If they are broke, or otherwsie cash-poor that is a different story. What would you want a vendor to say to you if the situation were reversed? Ask them if they would like to arrange payment TERMS at a reasonable interest rate (like 5% compunded monthly) if they will commit to a schedule. They would probably appreciate your flexibility and work with you on that.

If all that fails, you should still not reposess the website. That accomplishes nothing. You’d be better off sending them ONE letter giving them 30 days to pay you up and then take them to small claims court.

Interest rates like this should be based on the opportunity cost of not having the money, IMO.

To inform you guys more about the situation:

The job was not a fixed quote, but rather an hourly rate because I picked up on the website half way through where another web developer had finished.

Unfortunately no written contract was/is in place. I thought an hourly rate was like having a job, you work 1hr you get paid for 1hr.

The money that they have paid me already wasn’t a deposit, but rather a half payment of the 1 and only invoice.

I do believe that they are having some cash flow problems, as they are a relatively small company. However I’m sure they are still taking home their salaries and still paying their bookkeeper to do the books. Which makes me think - what position in the line am I going to be for payment!

The idea behind some sort of interest rate is to make my payment more of a priority. I value your opinions and I think from what I’ve read, I should be a little more realistic and perhaps base the interest rate on something.

Where I live the current credit card interest rate is about 17% per annum. That sounds a bit fairer.

I would try communicating with them first rather than the arbitrary interest. If that was never in your verbal agreement, it would also compromise your legal situation.

10% per month (120/year) is too high, I believe (at least in Canada) interest rates above 60% (or thereabouts) are actually illegal. If you don’t have contract saying you can change interest I would doubt the legality of charging any.

Regardless, best of luck

First off, you are not a bank, so stop comparing interests rates to these and credit card companies. If the design company wanted a loan, they should have gone to a bank, not a web design company.

Instead of charging interest, you could charge a late payment charge each month or combine this with interest payments.

But without a contract you’ll have a tough time enforcing any of that - so, what are you going to get people to sign before you begin your next job? :slight_smile: It really does amaze me the amount of people posting up on site point who work without contracts.

For me, it’s not 60 days, its 30. After that, I would look at legal proceedings. So at your stage, I would call them and follow up with a letter giving them 7 days to pay you. If they don’t, ring a lawyer and get him to send a letter (you will now start adding his fees to the outstanding invoice).

Someone mentioned avoiding ‘souring relationships’ - are you kidding? Good riddance to any client who doesn’t pay me after 60 days.

I mostly agree with Shadowbox.

I also really don’t think you can charge interest they didn’t agree to pay at the onset of the project, no matter what the rate is.

I think I’d write them and tell them you need something monthly on the balance. Try to negotiate a compromise between what you’d like (the full amount) and what they believe they can pay. Make it clear that once they agree to a monthly payment, if they default on their word, you’ll have to take other steps to collect what’s due you.

As for contracts, I don’t use them but then I don’t do that many “big” jobs. I send a proposal, ask for a deposit and the deposit is their acceptance of my proposal. However, in my proposal, I do include information on how I bill and how I expect to be paid.

I invoice once a month for work I’ve completed and I don’t deliver final work to first-time clients until payment has been made. My invoices are POD and after I send one, I don’t continue work on that project until it has been paid unless the client takes the active role in making other arrangements.

So far - so good. I haven’t had any problems in getting payments.

(On second thought, I think I’d call them and tell them you need something monthly on the balance. Work it out either on the phone or in person. Write out the agreement, send it, have them sign it and fax it back.)

BTW - as Shyflower says, don’t hand over work until it’s paid for, then most of your problems never happen anyway. I would also strongly advise taking a retainer or deposit before you begin any work for any new client. I would also state in your contract that you reserve the right to remove unpaid content from the internet until payment for that work is received.

Also remember that a contract is not just about defining payment terms - it’s also about having a signed declaration from your client that they understand ALL your terms of business, including copyright, indemnity, liability, country/state governing the laws of your contract, plus 100 other things that may not necessarily be of any particular concern to you today, but may be incredibly important a few years down the line when, for example, your client gets sued for copyright infringment on his web site and he tries to pin the blame on you, or he tries to sue you for loss of business because his email account wasn’t working for a week etc.

The only way to force them to pay you is terrorism. Do you know who the client is? If you do, send the design company a letter informing them that if payment is not received within X days, you will have to approach the client directly to collect your portion of payment from them.
If they still don’t pay, send invoice to the client and a copy to the design company. I don’t know if you have any legal right to collect payment from their client, but it’s not the point - the point is that they’ll lose this client unless they pay you.

I had a similar situation a while back where a client would not pay their invoices promptly, they would be NET 30 and would sit for a long time. I researched the possibility of charging interest and found that legality of how much you can actually charge will vary state to state (speaking within the US). There is a maximum percentage of interest you can charge someone per year based on the state you are in. If you have ever noticed why many of the credit card companies are all housed in the same states, it’s because they probably allow the highest interest rate per year. You can’t just pick some random percentage that you would like … well, you can, but if you end up going to court, the judge will disallow your interest as valid and perhaps find in favor of the client because of contract legalities.

Another note with that, you cannot just change or tack on extra stipulations to your invoices or contract (if you had a contract). If you initially said the invoice was NET 30, you can’t change it to NET 15 … if you didn’t have a late penalty listed you can’t just add one since it hasn’t been paid yet. All stipulations should be stated before work begins and those are what the client agreed upon. Now for future projects / clients, you can instigate some sort of penalty, but for this client … you really can’t do so “legally”.

With that said, the other suggestions made have been are good. Always be sure to receive payment before sending the client the files. Once you give them your work, they have no urgency or necessity to pay you in a timely manor. If they need it fast, then they need to pay you fast. Doesn’t matter if the press needs the file in an hour (there’s always a rush excuse), get payment and then provide files.

Why would the client drop the original provider? People outsource work all the time, it’s no biggie to the client. They only care that the work is done properly. All this does is make you look incredibly unprofessional.

I disagree here. You don’t have a relationship with the design firm’s client, and you really don’t have any legal leg to stand on trying to get the money from them. Your agreement was with a design firm, not their client. Going behind their back is immature and unprofessional.

If they don’t pay you, and won’t work out anything in the way of payments or time frame where they will, you have several options as the people here have posted. You could…

  1. Hire a collection agency.

  2. Take them to small claims court. If they are not willing to work with you, just take them to court. You’ll either get the money (plus court costs) or they’ll get in a good bit of trouble. And if that doesnt’ work…

  3. Take the site down. Technically, until you’ve been paid and have transferred copyright, you still own the rights to the intellectual property. I would wait and try all other methods first.

It all depends on how you do business, I guess. My biggest and most lucrative client is IBM. They are always late on their bills, but they bring in 6 figures (US) of revenue into my company. I call and complain, but they are always between 45 and 90 days on a 30 day term invoice.

I could get rich on these late payments. Should I take them to court?

Where did I say he has any legal ground to collect payment from the client? It wasn’t the point, the point is to irritate the client, which isn’t something the design company wants. They might pay him off if he just mentions that he’s going to do that.
Although I don’t see how a carefully worded letter with attached invoice would make him look unprofessional, he’s asking for an advice on getting paid, not looking professional. The design company is definitely the one who is being unprofessional here.
I would suggest doing it if everything else fails. It only costs 39 cents

Just as a note, there is no such law, which is why Payday Advance and such places have interest rates that can spike above 300% annually.

Banks, however, are regulated in interest rates.

H&R Block and other tax firms also charge somewhere between 100-300% APR on refund anticipation loans. They get away with it because the loan is so short and you’re thinking “what’s fifty bucks when I’m getting $XXXX back?”

It doesn’t matter how big a company is, they should still respect and honour the contract they sign - my point is that you shouldn’t be scared of tarnishing a relationship with such a client, because in the end, they are in the wrong and you are only trying to get them to do what’s been agreed to.

In the case of a late paying but lucrative client who you can't afford to lose, I would suggest re-negotiating your payment terms with them to reach a compromise, so that you don't have the stress and embarrasment of chasing them down after 30 days each time you work for them. For example, get put on a retainer, get paid in advance, get paid monthly or simply agree to an alternative but realistic payment term that you can both live with. 

And in my experience, no harm ever came of standing up for yourself (in as professional way as possible) regardless of the size of the company you are dealing with, especially when it's rarely the fault of your contact at a company, rather his accounts department.  No matter what the size of your client, you should aim to have an equal standing relationship with them. And in the end, what is the point of having them sign a contract if you are not prepared to enforce the terms contained within it? Where does it all stop? What other agreed terms will they also choose to ignore? 

But, yes, if I had a client worth millions each year, I'm sure I would cut them a little bit of slack compared to  my small-fry clients :) That said, where do you draw the line? 3 months late, 6 months, 1 year late? The lost interest alone could run in the $$thousands.

This is childish and makes you look unprofessional. The client would have no clue who you were so they’d just toss your letter in the trash or they might spread the word about an immature subcontractor and kill your business.