Being your own boss is one of the biggest perks of freelancing. However, that also means you have to do the not-so-glamorous work, like being your own contract manager and accountant.
While you’ll spend the majority of your time in your element, you’ll inevitably be faced with the uncomfortable situation of asking your clients to pay you on time. This is when you have to put your small business owner hat on and take action right away; the longer you wait, the harder it will be to continually get paid on time.
Here are four ways to manage unpaid invoices:
1. Be Persistent
In the beginning of my freelancing career, I used to feel shy or awkward about telling clients they were late with their checks. I clearly stated on my invoices and in my contract that invoices were due within 30 days, but I would wait until the 35th or 40th day to send a reminder.
Since then, I’ve realized that clients want to know as soon as possible when they’re late. Half the time, it was a simple mistake and they appreciated the reminder. Now, if I haven’t received payment on the 30th day, I said a friendly emailing saying something like, “Just a reminder that the April check is due today.”
I’ve also learned that you have to be persistent. No one else will help you get paid; it’s completely up to you. If my first reminder didn’t work, I send follow-up reminders every week. If that doesn’t work, I schedule a call to talk through it.
2. Put Work on Hold
You could also stop working on any projects until all bills are paid and up to date. If you go this route, make sure to be extra transparent. Add this stipulation into your contract and on your invoices. Or, if being persistent hasn’t worked and you have to spontaneously resort to putting work on hold, give your clients a head’s up. Send an email warning them that if the invoice isn’t paid within the next X days, you’ll have to put your work on hold.
3. Ask for a Deposit Up Front
Instead of managing payments at the end of the month/project, ask for a check before you start working. If you charge a retainer or a set rate per project, this will be easier to do than if you charge hourly.
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As you’re signing the contract and defining the scope of work, ask for a 50% deposit up front. This way, even if the client is late at the end of the project, you already have half of the payment.
4. Add Late Fees to Your Contract
The most drastic step you can take is imposing late fees. That number can range, but common late fees include 15% for every month the check is late, a flat 1-2% per month, or an increasing scale based on how late the check is (5% the first month, 10% the second month, 15% the third, etc).
Before introducing late fees, make sure your contract is amended and that both parties sign the new version. Add a section about “payments made after X days after the agreed upon due date will be increased to include a X% charge.”
What You Can Do Now to Avoid Unpaid Invoices
Evaluate your contract and invoices to see what kind of language you currently have around late payments. Consider adding something about late fees or paused work if unpaid invoices get out of control.
And, going forward with new clients, make sure to work them through your process for managing unpaid invoices from the beginning. Be transparent and set expectations right away so there are no surprises. It’s better to talk about the what ifs than to catch a client off guard with a late fee.