In the freelance or small business world, late invoices are frustrating at the least and highly problematic at the worst. As a freelancer or small business owner, it’s essential to business that invoices are paid on time so that employees can be paid, bills will be on time, and so forth. Thus, implementing a process for charging late fees can deter customers from paying their invoices late.
Benefits of Charging Late Fees
There is a multitude of benefits to charging late fees. When considering late payment fees, it’s essential to make sure that initial personal protection measures have been taken, such as a signed agreement that has clear deadlines and standards for completion of the service. A late fee should be included in any contract’s terms. The invoice must also be sent in a timely fashion, and should clearly state when payment is due and what the company’s process for charging late fees is. When it comes to the benefits of charging late fees, the largest is that it protects a business and its cash flow. Late payment fees can encourage clients to pay more quickly, making operations run more smoothly. It also increases the chance that you’ll be one of the first on the list if the client has a long list of expenses to tend to. There are also, of course, instances when late fees should not be enforced, such as when a client has an unforeseen personal circumstance.
Legality and Guidelines
The goal of a late payment fee is to deter late payments, not to serve as another method of revenue for a business. According to Debitoor, in B2B transactions, the business owner is legally allowed to charge interest as well as a collection fee for late payments. The late fees may begin once the payment is more than 30 days late. This would be 30 days after the day the invoice was received or the payment date that was agreed upon. The business should ensure that all agreed-upon services have been tended to, as well as that clients were aware of the late fee before signing the contract. This transparency is essential, as clients who are hit with late fees that they didn’t know existed are likely to become more agitated and resist paying even further.
If a business is looking to avoid charging late fees, another option is to increase the accessibility of online payment options, as invoices “are paid around 14 days sooner when online payments are available”. Increasing automation is another option, as then standing orders will be filled and paid for systematically rather than having to track down the customer each time. A business owner can also offer to waive the late fee and reduce rates if the client is willing to pay in full upfront.
When it comes to protecting a business, late fees can be incredibly helpful. When used empathetically, late fees encourage clients to tend to their invoices in a timely manner to keep all practices moving smoothly. Hopefully, with proper transparent implementation, late fees will not even have to be charged.