Master Invoice Late Fee Wording for Teams with Ease

Invoice late fee wording for teams

Welcome to Design Domination, where you'll learn to become a better, more business savvy designer, so you can dominate your competition. Hi, and thanks for tuning in I'm Colleen Gratzer, and in this episode of Design Domination, I'm talking about late paying clients Dealing with late paying clients and collecting on late invoices is a huge pain. It's time consuming. It's mentally draining. You feel like a nag. But darn it. You need to be paid on time! If clients pay you late often, it might be a sign that something needs to be fixed on your end. It could be a symptom of a bigger issue. Stick around to understand why clients might pay late. A couple of the reasons might surprise you. How you can help prevent clients from paying late? How to protect yourself from late paying clients and what to do if and when a client pays you late? So, let's look at a few reasons that clients might pay late. The first is that a client might have inadvertently misplaced the email with the invoice or printed out the invoice and then misplaced it. They might have sent it to their bookkeeper or their accounts payable department to pay it and they overlooked it. With the COVID situation, you may have found that some clients have been paying a bit later because they've had to change the way they work. Some things are more difficult for them to deal with since they haven't been able to be at the office in their normal work environment. Their processes may have had to change. They may have distractions at home that they didn't have before. Another reason is that they might be experiencing cash flow issues. This could happen regardless of how much the invoice amount is, but it may be more likely to happen with larger invoices. The client may be having trouble getting the invoice approved. This is more likely to occur within larger companies or organizations, where they have multiple departments and have certain requirements for what needs to be included on an invoice. They might require PO numbers, for example, or your vendor ID number. Your contact may not be the one to look for those details. They might just review the invoice amount and then forward your invoice to their accounting department to pay, and that department may not review the invoice right away. Once they do, they might bounce it back and that just eats up time. Another reason is that the client might say that they're unhappy with your work and ask that you redo a portion of it before they make a final payment. This could be a legitimate concern. So hear them out. The client might be surprised by the invoice amount and maybe that's because you never gave them an estimate to begin with or you never told them that the additional work they requested would cost more. So now they need to find out why and potentially justify that to a higher-up. Another reason is the client is showing disrespect. Now, this is a major point. So please listen up. Disrespect doesn't always occur in the form of rudeness. Clients who don't pay on time on a regular basis are showing disrespect for your process. Now I'm not referring to clients who've been affected by COVID a major life event or health issue. I'm talking about the chronic late payers. It took me many years— many years—of working with several particular clients— repeat offenders— to realize that this was only one symptom of a problem in my business, and that is I was putting up with bad clients. Now I didn't perceive them as bad clients right away, but there were other red flags and I ignored them: entitlement, expecting priority but never willing to pay for it, completely disregarding my late fees on invoices, often questioning my invoices, and everything always being a rush. I know of other designers who fired clients for far fewer infractions, but again, I made up excuses. "But they're so nice when I speak to them." "But they give me a lot of work." "But I like the type of work they give me." "But they're my biggest client." "But what if I can't find another client to replace them for a while." So I've heard it all and I've said the same things myself. So let me give you a couple examples. One client who paid late all the time felt entitled because of the amount of work that he gave me. It was an okay amount, nothing to write home about. I mean, it really wasn't that much. One day, after a few years of me being fed up with him and even contemplating firing him, he called me with an ultimatum. "If you insist I pay the couple dollars in late fees, then we're done. Otherwise I'll ignore them and we can continue working together." Well, that made me sick to my stomach. No way was I going to let this client bully me out of something that he had already agreed to and that I had the right to do! Plus, I had already overlooked the late fees so many times before and I was sick of chasing down payments. I finally decided to assert myself against this bully and enforce the late fees that my contracts had always mentioned— you know, contractual terms that he had agreed to. I stood firm and I said, "Well, then we're done." Well, it felt great to say that with such conviction on the phone. I was also really upset for a moment after hanging up. This was a client who had always praised my work and then suddenly he was telling me he'd find someone better and cheaper. I think I was actually more upset with myself, that I had allowed the situation to have occurred in the first place rather than being upset about losing the work— although I didn't see it that way in that moment. I realized later that that had been his way of trying to control the situation, because I had taken the control from him. He had wanted me to just waive the late fees again, and because I didn't, he wasn't in control. So he resorted to baseless insults like a bully! But, you know, the joke was on him. Several years later, his new website still wasn't launched and I quickly replaced him with awesome clients. So never let a client tell you how to run your business. And remember I said usually there are other red flags and late payments are just a symptom of a larger problem sometimes. For another client, for close to a decade, I worked every month on a large publication. They usually had two to three invoices outstanding at a time. I had agreed from the beginning to their net 60 day terms. They paid on time for the most part until the last year that I worked with them. I sent several emails alerting my contact to the past two invoices and she said that you know, she'd pass it along to accounting. I emailed again and then later emailed accounting directly and I didn't hear back. So I called and I left voicemails and I still didn't hear back. And then I sent invoices in the mail and I didn't hear back. I mean, at that point it was almost 120 days, I think. Maybe longer, since the date of one of these invoices. I was really worried. And then I discovered that Dun and Bradstreet—at that time anyway, I don't know if they do this anymore— that they had this service where they would send out what they call a Duns Demand Letter on your behalf for only like 35 bucks or so. Because it was so low cost, I did that before considering other avenues. Well, that worked. I actually got a response in the form of a nasty call from the accountant telling me, "You shouldn't have done that and you should really have known that you would have been paid at some point." I mean really? Well at this point I had more confidence. So I was not willing to put up with that kind of crap despite the fact that they had been my biggest client and accounted for a good—I don't know— 40% of my income at some point. I mean, that's a whole 'nother podcast episode though. So I told my contacts that I was done after the issue that I was working on and to find someone else from then on. And, again, there had been tons of red flags: Being praised gratuitously by my first contact there even telling me she told everyone how great I was for having been able to lay out and edit a several hundred-page publication in two weeks time when I first took it on, only to then call me at my full-time job and yell at me and ask when she'd be seeing proofs. Like, was it ready yet? But it's like wait. This is the same person who would complain the publication never got done on time in the past by someone else. This was the first time it was getting done on time. And she still wanted me to hurry up and get it done sooner than we had agreed to and sooner than the set schedule. My contacts after that point weren't as qualified for the position in terms of skill set and experience. But the nice one that I actually enjoyed working with left after a short while and the other one after her was like dealing with someone with amnesia on a daily basis. I could think of a lot of unpleasant things that I'd rather have done than to have continued dealing with that person. [ laughter] Oh, okay, [laughter] that was a lot reliving these scenarios is a bit traumatic. [laughter] Thankfully, I don't have PTSD from them! I am also so glad to be in a completely different head space now where these things don't happen anymore and I've had a completely different, much more enjoyable business. It took a lot of difficult mindset changes to get there though. Okay, so how do you protect yourself from late paying clients? Well, there are several ways that you can protect yourself from not being paid on time. And I want to give a disclaimer since i'm mentioning contracts. I'm not a lawyer and I don't play one on TV. So be sure to seek legal advice from a legal professional for what you should do in your situation and in your jurisdiction. Okay, so the first thing is to set expectations. You want to set expectations like in your work terms. OK, so revisit your agreement. Does it talk about late fees? When payments are due? What happens when payments are past you? Do they go to collections, arbitration or court? If your contract doesn't address these things, I suggest that you address them and have a lawyer review your contract. Now, for late fees, what you're allowed to charge varies by state. You usually can't just slap a $50 late fee on something because you feel like it. In Maryland, I can charge 1.5% per month, which is 18% APR. You also want to state if your invoices are due upon receipt, 10 days, 30 days, 60 days or whatever. Now, larger organizations might dictate these terms, unfortunately, so you'll have to decide if it's worth it to deviate from your usual terms. My contracts also state that the client does not get any reproduction rights or copyrights—you know, whatever the situation may be—until they've paid in full. So that means they can't legally use the work until they've paid up. Something else is to get money up front. For all new clients and for most existing clients, I get 50% up front, with the balance due prior to providing the final PDF or print file or launching the website—whatever is the case. Now, again, some larger organizations may not pay up front. But it may not be a risk. So you need to consider if you're okay with that. If new clients won't agree to this, it's a deal breaker for me. And it's about lowering my risk and it's about getting respect. For clients I've worked with for years, I sometimes invoice just at the end of the job if it's not that large a fee. But if it is a larger project fee, I will send another incremental invoice in the middle. So maybe 50% up front and then 30% at a certain point in the process and 20% at completion. And, hey, nothing motivates you or a client [laughter] like the requirement for you to get payment in hand before starting work or handing over final files. And, by the way, I never base any payments on client acceptance or approval of a design proof, etc., because that is subjective. And they could potentially drag out the approval process just so as to not pay something else you can do is to get money prior to delivery. So, like I said earlier, ask for the final payment to be made prior to delivering final files, you know, or launching a website, especially for new clients. And if a client still needs 30 days to pay, you can sometimes still accommodate this by sending the invoice in advance rather than waiting until the last moment. And did you know that you can actually help some clients pay on time? You can! There's actually several things that you can do to help prevent clients from paying late. The first thing is to provide due dates. When you send an invoice put a due date that aligns with your terms. Again, nothing motivates like a deadline. And then you also want to provide whatever information that the client might require for you to be paid. So that's typically: date of the invoice, business name or your name, address, contact information, project name, details about the work, potentially including the dates the work was performed if that's a requirement for them, your tax ID number—so that would be your business EIN or your personal SSN, for example. They might also require you to include your vendor ID if you've had to register as a vendor with their organization or maybe a PO number or a billing code. Keep in mind that the invoice might be sent along to someone else, and they might only process payments on a certain day of the week or twice a month. The longer it takes for them to get the proper information the more likely there is to be a delay. Another thing you can do is to not surprise the client with the amount. If the client added to the scope of the work in the middle of the job, you should always let them know right away about any additional costs. If you wait until later and you assume they'll just understand that it's gonna cost more but they don't know what that amount is and that they're just gonna be willing to pay, you could be in for trouble. They often, understandably, take your silence as meaning that the estimate hasn't changed. You also want to send invoices promptly. Don't wait to send an invoice, especially for big jobs. Sometimes what happens is that over time you or the client forgets the details of all the work. And this makes it more likely that they will question the invoice, unless you've given them an estimate and it ends up being the same cost. You can offer a discount for paying quickly. You could offer 10%, let's say, off the invoice if they pay within 10 days. Another great motivator. You want to make it easy to pay. Offer several payment methods and list them. If you want them to pay via credit card, Zelle, bank transfer or Paypal, for example, provide that information on the invoice. The client may not assume that your email address or phone number are the same ones that are used for those accounts. Providing this information up front alleviates a string of emails asking for confirmation and then you having to dig up the information and reply back to them. If you offer bank transfer as an option, what I do is have a separate account just for payments so that I'm not giving out my main bank account information. A lot of times you'll get paid faster if the client can just click a link and pay rather than send a check in the mail. Although i'm happy to take checks from clients unless they need to be paid right away because there's no fees. But a check in the mail is more work for some clients. It's something they have to remember to go back and do later. If you need options for sending invoices online you can consider: Freshbooks, Wave, Xero, Fiskl, Quickbooks, Stripe, Transferwise or there's quite a few others. If you have a client who tends to misplace your invoices, consider giving them access to a client portal or Dropbox or Google Drive that gives them access to invoices all in one place. and then you don't have to be bothered with resending them. If the client doesn't acknowledge receipt of the invoice within a few days, send them a friendly email asking how they're doing. And then oh, "By the way, I just wanted to make sure you got my invoice." Something might have come up. They have a life. Things happen. You know, so act like a human [laughter] but casually follow up with them. For those clients who might need prompting, you could send out a friendly reminder before the invoice is due. Now, my project management system, Pancake, allows me to do this and it's really awesome. I have custom email templates set up in the system and then in the list of outstanding invoices, I can simply select one of the email templates the one that I have set as a courtesy reminder, and it gets sent out with the invoice that I select. And I might do this a week before it's due. Thankfully, I haven't needed to use it a very long time. Again, though, that's if you feel like sending out reminders because that is more work for you. Plus, if the late payments are just one sign of disrespect, then do you really want to continue dealing with that client? All right. So what do you do when a client pays late? Now, of course, there are exceptions to every rule and while I give out tough love advice to you— things that I wish I had done sooner than I did— I believe in having compassion when it's warranted too. If a client were to contact me and let me know beforehand that they're going to have an issue paying on time, and they want to negotiate terms or a payment schedule, I'd be much more willing to consider that, especially if they've rarely paid late and this is an anomaly for them. Another thing to do is enforce late fees. Even if you're a freelancer, you are still a business and businesses charge late fees, especially when the client has agreed to your terms and those are in there. If you don't enforce them, then the client may not care about paying on time now or in the future. They might see you as always crying wolf and not take you seriously. Charging them even once can send a message. You should send the invoice again, you know, you can email it and say "Payment of x number of dollars is past due. Please remit within five business days (or immediately) to avoid paying late fees." Some clients will be apologetic. "Oh, sorry. I didn't realize. I'll get it to you immediately." It's like "OK, no problem." But how about the chronic late payers? Being firm and clear is important and give them a deadline and state the consequences. And my emails [laughter]—the tone of my emails—go from friendly and firm to more serious in nature. And then you want to follow up by phone email and or mail if you still have not received payment by that time. Always keep it professional, unassuming and unemotional. In the subject line, you know, you could put "second notice" or "third notice" or "final notice," depending on which one it is. And that's so you're stressing the urgency. At some point when you're sending these invoices, send one that includes late fees and remind them of the terms they agreed to. My contracts say that I retain rights until receiving payment in full, so I would also remind them of this and that if they're using the work that they're in violation of my contract. When you calculate late fees, you go back to the date of the initial invoice. For example, if you have a $1,000 invoice and let's say it's 15 days past due and your terms are 30 days, then that would mean that it's 45 days since the date of the invoice. So I would calculate late fees by multiplying the invoice amount by the percentage I'm allowed to charge per year, which is also 1.5% a month, and then dividing that by 365 days in a year multiplied by days late. So I would multiply 1000 by 0.18, which is the APR for the year, divide that by 365, multiply that by 45 to get $22. If they still don't pay, then it's time to bring out the big guns, They've already been warned. Like I said, you could try something like a Duns Demand letter, if they still offer that. You could contact a lawyer to write you a letter or contact a collections agency. This is going to tell the client you mean business. Now, a lawyer will probably charge you a flat fee—not a big one— and a collection agency will usually take a percentage. However, you'll get something out of it, hopefully, and you'll have made a point. That will also likely be the end of the relationship, but that's a good thing. Court should be a last resort. Many freelancers won't take it this far though because of the effort or because maybe they don't have a formal contract, which from my understanding is not a deal breaker for court. And there are some really bad clients out there who are betting that you won't take them up on this option too. I hope you never experience that and, thankfully, I haven't. But for invoices over a certain amount I would take it to court. Check out the show notes for an article by Freelancers Union on how to file in small claims court. I hope this has been helpful, and I also hope you never have to experience any of these scenarios. I see way too many stories online from freelancers who start work before getting payment or do work and then they don't get paid. They do work, get praise and then they don't get the rest of the payment because the client suddenly doesn't like the work, just to try to get out of paying. I can't stand it and it doesn't have to be like this! And you don't have to be treated this way. But part of the responsibility lies with you to take preventative steps and to stand up for yourself. Just because you're a freelancer does not mean that you're not a business. You are. So act like it! If this episode helped you, I would love to hear from you. Please subscribe and share it with friends and on social media to help others avoid these scenarios. Do you want to get more respect and command higher rates? I can help you go from order taker to expert, through mentoring, my free guides and premium resources such as my Brand Style Guide Builder, Brand Identity Builder and my website accessibility course. You can find out more at creativeboost.com. You can also join me and other creatives in the Design Domination Facebook group.