It’s an age old question: How to deal with late payments?

Dealing with clients who miss payments or pay late can put a strain on the relationship between designer and client and are something I am often asked about by those new to working for themselves . One method of addressing late payments is to charge interest on the amount due. However, this can put a strain on the relationship with the client, and while appropriate and necessary for some clients, is definitely a last resort approach to dealing with unpaid invoices.

Here is my checklist of things to think over before resorting to charging interest on your invoices:

Are you entitled to charge interest?

Check your original invoice:

  • Are your payment terms clear?
  • Did you clearly outline that interest will be charged, when and how it would be charged and the amount?

Check all other paperwork – is there any reason they are late paying?

  • Do the terms on your invoices match any PO order attached to it? If you agreed to a PO which states 45 days and your invoice says 30 days you will want to update your invoice (This has happened once to me, thankfully they phoned and corrected me politely so things went smoothly).
  • Check your emails – has there been any mention of deadline extension on the invoice or questions regarding payment you needed to clear up which have caused the delay? Also check your spam folder and voicemails just in case.

If you are entitled to charge interest, is it in your interest to do so?

Have you explored all other options?

  • Phone the client and check they received the invoice and ask if everything is ok BEFORE the due date is up. Perhaps they just need a few more days as the person who signs off the PO invoices has just been taken ill or needs to ask a few questions. The buzz word ‘pro-active’ is the one to go for here.
  • Send them a gentle reminder email saying that the deadline has passed and ask if there is anything you can do to help. Maybe they are having cash flow issues. Remember, suppliers who go in guns blazing are likely to be paid after those who offer an installment payment plan over a longer period and are more understanding of their needs.
  • Is this their first offence? Long term clients are good for business – if this is the first late payment why not just ask them when they can pay by and waive your normal interest charges in this case. It is likely they will appreciate the respect you have for their relationship with your business as well as gently remind them to meet future deadlines.
  • Are you caught up in red tape? Sometimes your contact is in a battle with some kind of internal red tape issue with their accounts team and the last thing they need is suppliers calling them demanding payments they are trying to send. Ask for a name to call in accounts and deal politely with them directly. Your main contact will appreciate it and it avoids any confusion when messages are relayed between multiple parties. For more advice, see our Guide to Chasing Payments.

Tried everything? How to charge interest and what to do next:

  • If everything has been tried and you feel that interest is the solution, set a new deadline, offer them a week to settle the account and then start charging interest. Ensure you have made the terms and amounts clear and then invoice for the interest from that point on.
  • Be polite at all times – adding interest gives the client another invoice to pay and dealing with it calmly and politely will give you a much higher chance of the amounts being paid promptly. Do explain your perspective, but ensure you paint the situation in more than just black and white terms.
  • Look over their account. After this project has been settled, perhaps you will want to ask for a larger deposit from them at the start of projects or perhaps even payment up front in order to continue the relationship. I would advise trying to maintain a good relationship with them and using these methods rather than cutting off late paying clients. Assuming they are a good client in other respects, remember their cash flow situation may be temporary and asking for upfront payment solves this issue whilst maintaining a good relationship.

Overall. I would say to always clearly outline your interest charges and policies on your invoices and terms of service. Saying you charge interest gives you that as a potential leverage tool, but does not mean you have to do so. Try to see things from the client’s perspective and remember that you need your clients as much as they need you. Also, if a payment is just a few days late – consider if that extra few pounds are worth all the hassle, paperwork and bad karma it may cause between you and a good client and only use interest as a last resort.

What are your experiences with charging interest on late payments? Let us know in the comments, or tell us on Twitter.