Most freelancers and small business owners need to be paid on time to keep a regular cash flow. Unfortunately, it’s common to deal with a late payment from customers. But how do you make up for that lost income?
Charging late payment fees encourages customers to settle outstanding balances as quickly as possible.
If you’ve never charged fees on invoices before, this guide will tell you everything you need to know. More importantly, you’ll learn about the best invoice late fee wording to use.
Should you charge invoice late fees?
Whether you should apply a late charge on overdue invoices depends on your current cash flow and customers’ paying habits.
Remember, there are many reasons why customers fail to pay invoices on time. And unclear payment terms is one of them!
So, before you decide to charge a late payment fee, make sure your late payment policy is clearly worded.
Invoice late fee wording
So what exactly does good invoice late fee wording entail? Let’s get into it!
When it comes to wording your late payment policy, all the details in your original contract should be there. A few more things to include in your invoice late fee wording are:
- Invoice number.
- An itemized list of the services rendered.
- Summary of the original invoice.
- Calculation of the new total amount due, including taxes.
- Due date.
Keep things simple, firm, and informative. And avoid personal matters, such as explaining why you need the payment immediately.
Remember, you don’t want to come across as unprofessional. This has a negative effect on your relationships with your clients, which damages your ability to close the sales deals.
It’s helpful to include the late fee payment percentage. For example, the average business charges a flat interest penalty of 1% to 1.5% of the overdue amount. That way, when a customer pays is late on notice or invoice payments, they’ll know the exact charges.
To make the payment process even smoother, have a section listing the steps to make a quick payment. You can even name the tools, payment options, and gateways your company has in place for their benefit.
Through this approach, customers feel less doubt about the payment process. It’s useful to include a phone number, in case a customer faces a problem at any step, or wants to clarify something.
Under some circumstances, when a customer refuses to pay, you’ll need to take an issue to court. That’s why your invoice wording is something to pay special attention to. Failing to do so could cost you!
Choosing the perfect invoice wording for immediate payment
Your follow-up email wording influences 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 gives you a general structure that you can quickly fill in with the correct details every time.
This strategy saves you time on manually writing the same message to different customers. There’s also a lower chance of making mistakes!
Include a personal message
While payment reminder email templates remove much of the manual work of writing invoices, you still want to add a personal touch.
Throw in a simple thank you or greeting to remind your customers that you’re human, too!
Provide clear payment instructions
Sometimes, the reality is that customers fall victim to overdue payments because of unclear contract terms. If you charge an overdue fee, do check that your late payment terms are easy to follow in your invoice late fee wording.
In addition, you’ll want to double-check that the amounts are accurate. The last thing you want is a situation with a customer accusing you of charging the wrong fee amount. It projects a negative image, which costs your company.
How to charge invoice late fees
Charging late fees can be challenging, mostly because there is no legal standard. What you charge is up to you. But these tips make it a little easier for you to come up with a reasonable late fee policy.
Notify customers ahead of time
When you’ve calculated your late fees, always notify customers ahead of time, so that their outstanding invoice doesn’t catch them off guard.
This also allows them to ask questions about your late fee policy and suggest an alternative payment plan if needed.
If you agree to the customer making minimum payments, your payment plans should clearly outline the minimum amount as well as any interest fees.
Add your late policy to your invoice payment terms
Even if your customers know about 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 will be accrued.
Include your late fee policy on new contracts
Don’t just state your late fee terms in the invoice—they should be specified in your contract agreement. This makes things clear for your customers before they sign 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.
Don’t forget to include information like an outline of your late payment terms and the attached invoice.
Escalate the issue if necessary
In some cases, you’ll have to take legal action over non-payment. Some options include getting a lawyer for legal advice or working with a collection agency.
If you do work with a collection service, just note that you may have to pay them a portion of the money they recover.
Frequently asked questions about invoice late fee wording
Are late payment fees legal?
Yes, charging a late fee rate is completely legal, although regulations and limits might vary depending on where you run your business or corporation.
If you’re unsure about 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 fee penalties vary. For example, business entities 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%.
When creating a site, page or document that includes late invoice fees, be sure to mention the company name and any regulations governing the fee.
What is an acceptable late fee for an invoice?
It might not make sense to charge the maximum rate on your late payment terms, especially if you are a freelancer or smaller business owner. How much you charge depends on factors such as:
- The business or corporations size.
- 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.
In some cases, a customer may try to negotiate for a refund of the late fee. If they’ve only been one or two days late, for example, it’s reasonable to accept it to remain in good standing. Your deductions will depend on your agreement with your customer.
How to calculate your late fee interest rate
To calculate your late fee rate:
- Divide the 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 property 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 for companies. However, applying late payment terms encourages people to pay on time while keeping your cash flow strong.
More importantly, the wording of your late invoice fees gives guidance to customers on dealing with their liability through requirements they need to fulfill.
If you’re an employer or business owner, be mindful of potential legal and taxation implications. Making sure all fees and partnerships are properly documented is the key to following federal regulations.
If you’re looking for an easier way to keep track of your accounts and payments, Method CRM is the perfect solution. Method is an all-in-one integrated CRM and accounting software that provides everything you need to get paid on time.
Watch our demo to get started with Method CRM!
Image credit: Karolina Grabowska from Pexels
