Invoicing basics — how to charge late fees on invoices.
Learn the best practices for setting late fees when clients don’t pay on time.
It can be a delicate business to navigate a client relationship. On the one hand, you want to provide excellent service and build a strong relationship. On the other hand, you want to get paid for your work and be treated fairly. The relationship can be strained by a number of factors, including an overdue invoice payment. The best way to avoid damaging a client relationship while still getting compensated fairly is to learn how to charge late fees on invoices and be explicit about them in your contract.
Can you legally charge invoice late fees?
Yes, you have the legal right to charge late fees on your invoices. To make sure you can do this properly, you need to have a clear and fair late fee clause in your contracts. This clause should explain when late fees will be applied and how much they’ll be, and it should follow the law in your area. It’s important to treat all customers the same way and let them know about your late fee policy. Some contracts also offer a grace period before late fees kick in. Be ready to explain your late fees if anyone questions them, and consider getting legal advice to make sure your policies are in line with the law.
Is there a standard late fee for invoices?
There isn’t a universal standard late fee for invoices. The question of how much interest you can charge on overdue invoices doesn’t have a one-size-fits-all answer. The amount you can charge for overdue payments varies and depends on your business policies, local regulations, and industry norms. Clearly communicate your policy to clients in contracts to avoid disputes, and make sure it aligns with your business’s needs and legal requirements.
How to charge interest on overdue invoices.
There’s no standard interest rate charge, or “late fee,” for an overdue invoice — that’s up to you as the vendor or business owner. Many vendors structure their late fees as a percentage of the total amount for every 30 days the invoice remains unpaid. It’s important to learn how to calculate late fees on invoices. For example, if you’re charging your client $1,000 for one month of work and your policy is to charge a 5% monthly late fee on overdue invoices, then for every 30 days the invoice remains unpaid, you can charge your client an additional $50 per month.
Regardless of the rate you choose, a best business practice is to call your client a few days after their 30-day payment window. A reminder may be just the nudge they need to pay their invoice without you having to charge a fee. This dialogue helps build strong working relationships of mutual trust. However, it’s important to have the late fee in place as a last resort to secure your income.
How to charge late fees on invoices that are fixed.
When deciding to use a flat fee for charging late fees on invoices, there are several factors to consider. The choice between a flat fee or a percentage-based fee depends on the specifics of your business and your clients. Here’s what to think about:
- Calculation. Determine the flat fee by assessing administrative costs and financial impact compared to a percentage-based fee that scales with the invoice amount.
- Expectations. Consider client preferences for predictability with flat fees or familiarity with percentage-based fees.
- Industry norms. Be sure to align your approach with prevalent industry practices.
- Legal compliance. Make sure that your method complies with local late fee regulations.
- Flexibility. Decide if you want customized, case-by-case fees with percentage-based fees or a standard flat fee for simplicity.
Specify your invoice late fee in the contract.
Your client contract lays the groundwork for your working relationship. Here, you want to be explicit about invoice payment due dates, grace periods for overdue payments, and late fees so it’s clear before you even write an invoice. This way, you have a paper trail with your client, and any interest charge shouldn’t come as a surprise. This provides both you and your client with a transparent understanding of the consequences of late payments, helping to prevent misunderstandings or disputes down the road.
Manage your contracts and invoices with ease.
Safeguard your finances, keep all of your documentation in one place, and easily do business with e-signature solutions.