As an army of one, you don’t have much time to chase late payments. So when your client “forgets” to pay you, it’s disheartening to have to ask for your money.
As a freelance writer, it took me just one late payment to realize I needed to create a late fee policy. Defining – and enforcing — such a policy helped me:
- Save valuable time
- Encourage prompt payment
- Promote healthier relationships with my clients
When it comes to wording your invoice late fee policy, it’s tricky to strike the right balance. Too harsh, and you might offend a good client who simply forgot just once. Too soft, and you could be stuck chasing payments for weeks.
I’ve found success by setting upfront expectations and writing past due reminder email templates I can leverage as needed.
What is a past due invoice?
A past due invoice is an invoice that your client or customer hasn’t paid by the agreed-upon time.
Usually, you add a “payment due date” to each invoice to help maintain a steady cash flow. You hope that chasing late payments never becomes part of your routine. But the reality is that, sometimes, people won’t pay you on time.
The lack of cash funds can be frustrating — even more so when it’s one of your favorite customers who slipped up. Cue the awkward conversation.
How to handle past due invoices
Instead of worrying about how you’ll broach an uncomfortable topic after the fact, get ahead of the problem.
Create processes that:
- ✓ Encourage on-time payments
- ✓ Tactfully address what will happen if they’re late
You can communicate these to your clients as soon as they start working with you. That way, they’ll already know what to expect for any overdue invoices.
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What is a typical late fee for past due invoices?
Generally, the typical late fee for invoices among freelancers is 1.5% monthly interest.
As a simple example, say a client paid you one month late on a $500 project. A 1.5% late fee means they’ll have to pay you an extra $7.50. Two months late, and their late fee amount becomes $15. And so on.
As you can see, a late fee of 1.5% isn't asking for too much extra money. But it does encourage on-time payments.
Is there a limit to how much your late fee can be?
Maybe. Any limits would be based on your state’s usury laws. These range from 5% (Iowa) to 45% (Colorado), with 10-20% being especially common.
Freelancers are often told to pay attention to these usury laws when setting late fees. But the truth is, they don’t always apply to us, legally speaking. (More on that below.)
That said, it’s a good idea to stay below your state’s usury limit anyway. A late fee beyond that would read as excessive. And that's not the best strategy for handling things, from a customer relationship point of view.
Why usury laws may not apply to contractors charging late fees
Usury laws were designed to dictate the maximum interest rates lenders can charge on loans. But small business owners charging late payment fees are clearly different from lenders.
When your client is late to pay you, are you offering them a loan? The commonsense answer is probably, “No.”
Some states agree. For example:
- The California Supreme Court ruled in 1990 that “interest payments on overdue commercial accounts are not subject to the usury law”
- The state of New York also decided that usury laws don’t apply to late charges where there isn't “intent to lend money”
Why ultra-high late fees are still a bad idea
You may not need to treat your state usury law as a strict legal maximum. But you still shouldn’t charge a huge late fee.
The courts might have your back, but you’ll have to worry about what your customers think. After all, these are the people you’ll want to write glowing client testimonials and refer their friends to your business.
What late fee should you charge on past due invoices?
A late fee of 1.5% is a good rule of thumb. But depending on your industry, it might be wise to bump up this figure slightly.
When setting your late payment policy, try to land on a figure that is fair, not obscene.
Ask yourself, what are your typical rates? For example, a $100 late fee on a $200 invoice might feel harsh. But a $100 fee on a $2,000 invoice? That feels more appropriate.
At the end of the day, there are two main ways to approach late fees. You can either:
- Charge a percentage of your invoiced amount
- Charge a flat fee
Here’s how to customize each approach
If you’re using a percentage rate
Add a percentage of your total invoiced amount to the outstanding balance.
For example, say you’re charging a 2% late fee on a $1,000 invoice. Your client’s new balance on the past due invoice: $1,020. ($1,000 x 0.02%= $20)
You can choose to add this percentage for every month — or week — your payment is delayed.
Let's assume the example late fee above is applied per month. After two months, the total balance due would jump to $1,040.
You might use a percentage rate if:
- ✓ Your invoice amounts tend to differ across clients
- ✓ You want to follow standard industry procedure
If you’re using a flat fee
With this method, you’ll add a fixed amount to your invoice after the due date passes.
In addition, you might also consider scaling your fee based on your invoice amount. For instance, you can enforce a rate of:
- $15 every month for unpaid invoices under $200
- $30 for unpaid invoices between $200 and $500
- $45 for unpaid invoices over $500
These amounts may seem meager, but they can ensure you get paid promptly. Your customers won’t want the hassle of processing your invoice twice.
You might use a flat fee if:
- ✓ Your products or services have a fixed price (or a pretty small range of prices)
- ✓ You don’t want to spend time calculating percentages
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How to communicate your late fee policy to clients
You can avoid tardy payments — or drastically reduce them — by setting expectations on your late fee policy upfront.
Here are a few tips for communicating with your clients, at every stage of working together.
Before you get started: Mention your policy in your onboarding contract
To define expectations from the start, I added a payment policy to my original contract.
I’ve found that policy verbiage is most effective when communicated in a friendly, yet confident, tone.
After considering how much I charge for writing services and my most common invoice balances, I felt that 5% was fair. So I added some language to my contract.
How should you word your late fee policy?
Here's how I do it:
“Like you, I enjoy getting paid for my work. I know we’re both busy making moves, so my business runs on a 30-day payment cycle that I think is fair for each party. After that, any overdue and unpaid balances will be charged a 5% fee.”
Will mentioning your late fee offend potential clients?
No. If you’re worried this verbiage might turn off potential clients, rest easy. Explicit directions like these usually have the opposite effect.
Most clients and customers appreciate clear guidance because it helps them work with you more efficiently. Plus, communicating defined, well-developed processes and policies shows customers you’re a tried-and-true professional they should want to work with.
When you ask for payment: Add late payment terms to your invoice
First, include a payment due date on every invoice. This is easy to remember if you use a simple invoice template for freelancers.
Then, clearly state your late fee policy. Something as simple as, “*A late fee of [1.5%] will be added to all payments after [date]” is usually enough to encourage timely payments.
After you invoice: Send reminder emails about upcoming or late payments
Send a quick message to your clients as the payment date approaches — or once a payment is late. (More on this below.)
Use project management tools to streamline your process
If this route feels more your style, consider using a marketing platform or project management software to help keep you (and your clients) on track. If you have multiple customers, it can be tedious to keep up with every due date by hand.
You can write off these helpful tools — and any other tools you use for your business. But to do that, you’ll need to keep track of what you spend on them.
The Keeper app will identify all your eligible write-offs so you can focus on, well, everything else you do each day to grow your business.
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How to write a past due invoice email: 3 templates to use
Sometimes, you’ll enact all the right policies — dot every “I” and cross every “T” — and still deal with overdue payments. If this is the case, your next step is to follow up via email.
In my experience, one reminder email is usually enough to grab the client’s attention. But particularly unruly clients may need a few reminders.
When you write payment reminder emails to clients with outstanding invoices, it's good practice to include this information:
- Invoice number
- Due date
- Amount owed
- Late fees being charged
- Instructions for payment
- Link or attachment to the invoice
Want to ensure your late fee wording sets the right tone? Here are a few past due invoice email samples you can use.
1 day late (or a few days late)
When I follow up on a recently due invoice I like to keep things friendly but firm. Most times, the error isn’t intentional. For example, busy schedules or bank processing delays might have thrown a wrench in things.
If the date falls around a bank holiday, consider giving them an extra day’s grace before reaching out. Then, send this:
See this template in Google Docs here
Hello [Client],
A subtle reminder that invoice [#123] was due this past [Friday], and is now [one day] overdue. I’ve attached the original invoice with payment options sent on [send date] to this email in case things got lost in the shuffle. Please note that my payment policy enforces a [5%] late fee on all overdue balances.
I’ve also attached a second, updated invoice which includes the late fee. Could you commit to processing this payment by next [Wednesday]?
Thank you,
Lauren
30 days late
When your client delays payment by a month, you’ll need to add a little “oomph” to your invoice late fee wording. Make your expectations clear, and let them know your future working relationship is on the line.
See this template in Google Docs here
Hello [Name],
My records indicate that invoice [#123], due [payment due date], is now [30 days] overdue. I’d love to continue working together, but I will need to receive compensation for my completed work before moving forward with any work, new or in progress.
I’ve attached the original invoice with payment options sent on [first send date] and again on [first follow-up date]. My payment policy enforces a [5%] monthly late fee on all overdue balances, so I’ve also attached a second, updated invoice which includes the 30-day late fee.
To continue our working relationship, I’d appreciate an immediate response. Could you please process this payment by [Friday]?
Thank you,
Lauren
60 days late
After a few unanswered attempts, it’s time to put on your enforcer hat and use stronger language. Try this:
See this template in Google Docs here
Hello [Name],
Invoice [#123] requires immediate attention. Unfortunately, my previous attempts to contact you regarding the outstanding balance have gone unanswered and your payment is now 60 days late.
I’ve attached the original invoice with payment options sent on [first send date], [first follow-up date], and again on [second follow-up date]. This is my final notice.
Please note that my payment policy enforces a [5%] monthly late fee on all overdue balances. I’ve also attached a third, updated invoice which includes the 60-day late fee.
I must receive payment from you by [due date] to avoid further collective action from an outside agency.
Please confirm receipt of this email and provide immediate payment.
Thank you,
Lauren
What to do if your client ignores your emails
If your outstanding invoices aren’t resolved after making multiple attempts to collect via email, it might be time to try other channels.
This is frustrating, I know, and it’s the worst part of business ownership — but you’re not out of options.
Keep a record of all your attempts to contact in case you need to enlist a third-party lawyer or collections agency later. Then, step into your power and try these strategies for collecting what’s rightfully yours:
1. Call them
It’s always better to get your actual client on the phone — the person you’ve been in touch with this whole time.
If you don’t have their direct number, find someone — anyone — employed by their company and give them a ring. Bonus points if you can reach their payroll department.
Let them know that:
- You’ve been trying to reach “so-and-so” regarding a past due invoice for the work you completed on “XYZ date”
- You’d appreciate help finding an immediate resolution
2. Leverage social media
If your client is part of your social network, try reaching them on social media.
Depending on how far you want to take it, you could also alert your freelance network and tag the company. If they care about their brand reputation, you might trigger a response.
Before sending your post into the worldwide web, where words live on in infamy, make sure it reads as professional. You’ll be most effective if you can keep a level head while detailing your problem.
3. Go to a third party
If all else fails and you’re still not paid for your contract work, it may be time to enlist outside help.
Most times, the threat to leverage a third-party player is enough to spur erstwhile clients into action.
Some of your options include:
- Hiring an attorney to write a final demand letter
- Hiring a reputable collection agency
When you should look for outside help
Taking this step is best if:
- You never want to work with this person again
- You’re owed a lot of money — more than enough to offset the cost of outside help
You’ll likely lose the client if you take legal action or send them to collections. And you’ll need to consider how much you’ll spend on hiring the enforcer.
In dire circumstances though, a partial payment might be better than nothing.
4. Stop working for them
Above all else, do not keep working for a client that refuses to pay you.
If you're working on a longer project or an ongoing assignment, don’t deliver any more work until all the overdue balances are paid.
Leverage this tip at any time in the process, if you can afford to pause work. Sometimes, letting your client know that you've stopped work is enough to get you paid.
Hopefully, that's the last late invoice you'll have to deal with for a long time.
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Keeper is the top-rated all-in-one business expense tracker, tax filing service, and personal accountant.
Over 1M freelancers trust Keeper with their taxes
Keeper is the top-rated all-in-one business expense tracker, tax filing service, and personal accountant.
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