One of the most important policies you can have in place in your business is for payment; a policy that outlines what you charge, when you bill, when payment is due and how you expect to be paid.
A question you will need to answer when you’re creating your payment policy is whether or not you will charge a late fee on payments that are not paid in a timely fashion. There are a lot of reasons why freelancers and small business owners opt not to do this — to avoid feelings of bad will with clients; it can be difficult to enforce; it can turn off new clients.
For those that do charge a late fee, the reasons are just as significant. Here are four common reasons some freelancers and business owners charge their clients late fees.
It Clarifies the Expectation
Informing new clients of your late fee policy before you begin working together can set the stage for how you expect the invoicing and payment process to work. Of course, all service providers expect to be paid and (most) clients sign on with expectation that they will pay you by certain time. But when you specifically say, “Your payment is due XX days after billing. If it is late, this is what will happen,” you are taking all of the uncertainty out of the equation and making your expectations clear.
It May Only Take One Charge to Hit Home
Late fees are not a good thing from a clients’ perspective. They’re not supposed to be, and they can be a powerful way to show you mean business. The first time a client gets hit with a late fee, especially if the late payment was due to not paying attention to the due date, may be the only time it ever needs to happen for the client to move your bill payment up a bit on his or her list of priorities.
It Makes You Less Resentful
Consistent late payment can be a sign that this client is not a good client for you. But if you have a client that continuously pays you late that you otherwise enjoy working with, charging a late fee can help make you less resentful and less likely to avoid working with the client.
It May Actually Get You Paid On Time
Ultimately, the most powerful argument for charging a late fee is that it can help you get paid on time. It doesn’t always work exactly as you anticipate, but in some cases, all you need is the warning of an additional fee in order to urge clients to pay you on time.
Just a few notes on charging late fees. Make sure you outline the entire process in your contract AND individually discuss it with your clients so they are not automatically hit with a fee when their payment is a day late. You may even want to institute a warning process that builds up to an eventual charge, instead of whacking them right out of the gate.
Keep in mind that some locations have limits on how much you can charge in late fees, so be sure to check local laws or consult with a professional before adopting a late fee policy.
Do you use late fees in your business to encourage timely payment? Does it work?
Image credit: jeinny
Alyssa GregoryAlyssa Gregory is a digital and content marketer, small business consultant, and the founder of the Small Business Bonfire — a social, educational and collaborative community for entrepreneurs.
