Most freelancers and small business owners need to be paid on time to maintain a regular cash flow. Unfortunately, you might have to deal with a late payment more than once, so how do you make up for lost income?
Charging late payment fees can encourage customers to make a prompt payment or settle outstanding balances as quickly as possible. However, the maximum interest rates you can charge will vary from state to state. If you’ve never charged fees on invoices before, this guide will tell you everything you need to know, including the best invoice late fee wording to use.
Should you charge invoice late fees?
Whether you should enforce a late charge on overdue invoices will depend on your current cash flow and customers’ paying habits. Remember, there are many reasons why customers fail to pay invoices on time, auch as missing reminder emails or unclear payment terms. Before you decide to charge a late fee, make sure you haven’t already received the money and have clearly stated your late payment policy.
Invoice late fee wording
When it comes to wording your late payment policy, you should include all the details in your original contract. Here are a few elements you include in your invoice late fee wording:
- Invoice number.
- An itemized list of the services rendered.
- Summary of the original invoice.
- Calculation of the new total amount due.
- Due date.
Keep things simple, firm, and informative. Never bring personal matters such as why you need to receive payment immediately into your email as it comes across as unprofessional and can negatively impact your customer relationships.
Choosing the perfect invoice wording for immediate payment
How you word your follow-up email can dictate how quickly a customer settles their late invoice. Here are a few tips for invoice late fee wording.
Use a professional template
A professional invoice template provides a general structure that you can quickly fill in with the appropriate details every time you need to send invoice reminders. This allows you to save time on manually writing the same message to different customers.
Include a personal message
While payment reminder email templates eliminate much of the work of manually writing invoices, you still want to address your customers personally. Throw in a simple thank you or casual greeting to remind your customers you’re human, too!
Provide clear payment instructions
Sometimes, customers fall victim to overdue payments because of unclear contract terms. If you charge an overdue fee, make sure your late payment terms are clear in your invoice late fee wording and easy to follow.
How to charge invoice late fees
Charging late fees can be challenging, primarily because there is no legal standard. What you charge is up to your discretion. However, these tips might make it easier for you to develop a reasonable late fee policy.
Notify customers ahead of time
When you’ve calculated your late fees, always notify customers ahead of time so their outstanding invoice doesn’t catch them off guard. It’ll also allow them to ask questions about your late fee policy and develop an alternative payment plan if necessary.
Add your late policy to your invoice payment terms
Even when your customers are aware of your late payment fee policy, it’s important to outline your terms in your invoice. Keep your invoice late fee wording readable and brief, mentioning when late fees come into play and how much interest you’ll charge.
Include your late fee policy on new contracts
Don’t just state your late fee terms in the invoice—include them in your contract, so your customers know them before signing off on a new project.
Send invoices promptly
If you want to get paid on time, you have to send your invoice on time. Send your invoice as soon as you wrap up a project to stay top-of-mind. Then, send a friendly reminder the following day.
Follow up immediately on late payments
Don’t wait until your invoice is a few days overdue to follow up. You can send payment reminders as soon as a day after the deadline. Make sure to include information like the original due date, the invoice number and amount, an outline of your late payment terms, and the attached invoice.
Escalate the issue if necessary
In some cases, you might have to take legal action over non-payment. Some options include finding a lawyer to provide legal advice regarding demand letters or working with a collection agency. However, if you work with a collection service, note that you may have to pay them a portion of the money they retrieve.
Frequently asked questions about invoice late fee wording
Are late payment fees legal?
Yes, charging a late fee rate is entirely legal, although regulations and limits might vary depending on where you run your business. If you’re unsure how to set your late fee rate, research local state laws or consult with a lawyer.
How much interest can you charge on unpaid invoices?
Depending on where you run your business, the maximum interest rates on your late fees will vary. For example, businesses operating in the United States have different maximum rates in different states. In California, the maximum rate you can charge for late fees is 12%, while in New York, the maximum rate is 16%.
What is an acceptable late fee for an invoice?
It may not make sense to charge the maximum rate on your late payment terms, especially if you are a freelancer or run a smaller business. How much you charge will ultimately depend on factors such as:
- The size of your business.
- State laws.
- Your customer’s payment history.
- How much a late payment impacts your cash flow.
Most freelancers and startup owners charge a late fee between 1% and 1.5%. Larger enterprises might charge 2% or more.
How to calculate your late fee interest rate
To calculate your late fee rate:
- Divide the agreed-upon annual interest rate by 12 to get your monthly interest rate.
- Multiply this number by the amount a customer owes you.
For example, if you run a larger business with an annual interest rate of 12%, your monthly interest rate will be 1%. If the customer owes you $15,000, multiply this amount by 1%. The total late fee owed is $150.
Download your invoicing email templates for free
Unsure of how to word your payment follow-up email?
Use these free email templates to send invoice follow-ups and payment requests to your customers.
Invoice late fee wording: Key takeaways
Unfortunately, overdue invoices are nothing new in business. However, enforcing late payment terms can encourages customers to pay on time and in full while keeping your cash flow strong.
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