Many freelancers are surprised to learn that sending an invoice to a client isn’t always enough to get your invoice template paid. In fact, late freelance payments are a common complaint among developers and designers who have finished a large project and are anxious to get compensated for their online contract.
A recent Freelancer’s Union study painfully reveals that nonpayment for workers in 2014 affected a staggering 34% of those who responded; of those that were paid, some waited an average of 90 days or more for money to come in from late-paying clients.
When you’re a freelancer, time is money, so it’s important to acknowledge the impact late payments can have on your business. There’s no benefit in assuming that things will always go your way. In fact, it’s best to confront the possibility head on. Fortunately, there are several proactive things you can do to avoid having to spend your time chasing your money. We also included our top 5 late fee clauses which you can simply add to your freelance contract and stay safe - read on to download them.
Here are the basics to pursuing collections and how late fees can assist in the process.
Didn’t get paid according to your contract requirements? There’s a solution for you. It’s possible to charge an extra amount on your next invoice in the form of a late fee. Whether you choose a flat rate or a percentage of the project cost, it’s up to you to request this amount from a late-paying client. Don’t ever assume that they will pay one without you asking first.
Some freelancers set up accruing late fees, which allows the extra amount to compound over time. For example, if you were not paid on a $1,000 project, and it is in the terms of your contract to assess a 5% late fee, you can add $50 to your next invoice. If it’s accruing, the amount will increase for every month that it’s outstanding. Late fees should always be added as an extra line item on your invoice, with a very clear description of what it is for.
In most cases, it is absolutely within your right to ask for late fees. This assumes, however, that the fees are reasonable and that you stipulate up front (usually in your contract) that they can be assessed. What is reasonable? While there is no exact amount or percentage that qualifies, your fee amount must appear to be fair if you ever need to defend it in a court of law. A $250 late fee in a $5,000 project seems fair; a $100 late fee on a $150 project does not.
Be sure that any contract with a new client (and renewal contracts between existing clients) clearly state when the payment is due and how the late fee will be calculated. Communication issues can muddy the waters, so make no doubt in your contract terms as to how and when payment should be made.
If you require payment upon invoicing, say this. If you require payment 30 days from the date you complete work, state that. An enforceable contract is the only kind of contract you should be signing!
Do you want to see how you can create a freelance contract with such clauses in just 2 minutes using Bonsai? Here's how!
To start, just head to your Bonsai dashboard and click on "create a contract" from the right.
Now you can choose or create a client and project for the freelance contract with late fees. In this example we're using the "standard template".
During the first 2 steps you will fill in the general information for the contract, and once you reach the "payment" section things get interesting. This is where you will add your hourly rate, and any fixed price payments. Last and certainly not least, you'll have the option to set up a late payment fee which best suits your business.
Once you're done, click on "continue" and you will get to the final step of the contract creation process, where you can set up invoicing.
Double-check everything and hit "create contract" when you're ready to generate the contract. It will be ready to use, so feel free to send it to your client for e-signature.
Simple workflow, right? If you're tempted to give Bonsai's contract product a try, or explore any other feature such as proposals or invoices, feel free to sign up for the trial!
While a 5% late fee may not seem like any big deal, it can have quite the positive effect on a small business. Freelancers do report to getting paid more promptly when a late fee is written into a contract. It also shows clients that you are a legitimate, professional business, and that your payment standards are consistent with those values. Ultimately, when a client sees a late fee, they will prioritize your payment over someone else that doesn’t have a late fee – assuming they can pay just one of you that month. Since many late payments come from simply forgetting, it’s a stark reminder to pay attention to future invoices you may be issuing.
Late fees won’t make you rich, but they can provide a little relief for the time and energy spent running down payments. If $50 on a $1,000 contract helps you feel like you can take a half hour out of your day to send another invoice reminder, you’ll be less likely to grow frustrated by delinquent invoices and see payment management as just part of your paid job. It goes a long way in helping keep a positive attitude in a very unpredictable business.
Most freelancers don’t have a problem getting clients to pay late fees but occasionally you may find a client that ignores it or refuses to pay it. To avoid this happening, discuss late fees clearly in your contract, and include a note on each invoice that refers to it. A simple line that states this will work well: “If this invoice is unpaid by the due date, a non-compounding late fee of X% accrues monthly on the outstanding amount.” (Bonsai freelance contracts & invoices already include this language.) Your contract should also have a payment due date clearly listed. Visit our guide on how to make an invoice so you'll know what other details should be included in your invoice.
For a downloadable pack of 5 easy to use late fee clauses for designers, marketers, developers, writers, videographers and more, click below.
If, after the due date has passed, you still haven’t received payment, a firm but polite email is needed. You can choose to reattach the invoice, or resend it with a personal note. Freelancer have had good luck with writing something like this with their reminder email: “I see that your invoice #XYZ is still unpaid. Please let me know if you have questions, and we look forward to receiving your payment this week. A 5% late payment fee will be assessed on future unpaid invoices. Thank you for your business.”
If you still do not receive payment, you can start including the late fee in invoices. You should also think about whether you want to continue providing services for this client. While there are good reasons for payments to be missed – such as an accounts payable person out on vacation – anything not resolved within a month or so should be a red flag that it is not the type of client you want to keep working with.
The late fee is usually enough to get freelancers paid, but in the rare case it isn’t, you can collect late fees along with the original invoiced amount when getting assistance from a debt collection agency or if pursuing the payment in court.
You shouldn’t give up on a late payment. While rare, some freelancers have waited a year or more to be paid! Never negotiate a lower payment or forgiveness of late fees in exchange for payment. If a client owes you money – and are willing clear the books – they should be prepared to pay the full amount owed.
If you have done business with a client from NYC, you now have another option for collections. According to the recent “Freelance Isn’t Free” Act, any invoice not paid by the contract due date or 30 days after services (when no date is specified) can be included in a formal complaint with the New York City’s Office of Labor Policy and Standards (OLPS). If a case is decided for the freelancer, the invoice cost may be awarded at twice the original amount. (This is only for cases that are not currently in collections or in a claims court.)
Remember that a late fee shouldn’t be seen as a punishment. It doesn’t have to become a personal indictment against your client, and it should never be approached as anything but a cost of doing business. All medium to large-sized businesses impose these type of fees, and your client will likely be used to seeing them. As a freelancer with limited time and the inability to scale your day in the way a company can, it’s more important for you to claim your hours and get paid for them.
Late fees help you stay profitable and efficient, and encourage your clients to be prompt with their payments – all in a very professional manner. Start managing your freelance business with a free Bonsai trial and get paid faster.
A verbal contract (formally called an oral contract) refers to an agreement between two parties that's made —you guessed it— verbally.
Formal contracts, like those between an employee and an employer, are typically written down. However, some professional transactions take place based on verbally agreed terms.
Freelancers are a good example of this. Often, freelancers will take on projects having agreed on the terms and payment via the phone, or an email. Unfortunately, sometimes clients don't pull through on their agreements, and hardworking freelancers can find themselves out of pocket and wondering whether a legal battle is worth all the hassle.
The main differences between written and oral contracts are that the former is signed and documented, whereas the latter is solely attributed to verbal communication.
Verbal contracts are a bit of a gray area for most people unfamiliar with contract law —which is most of us, right?— due to the fact that there's no physical evidence to support the claims made by the implemented parties.
For any contract (written or verbal) to be binding, there are four major elements which need to be in place. The crucial elements of a contract are as follows:
Therefore, an oral agreement has legal validity if all of these elements are present. However, verbal contracts can be difficult to enforce in a court of law. In the next section, we take a look at how oral agreements hold up in court.
Most business professionals are wary of entering into contracts orally because they can difficult to enforce in the face of the law.
If an oral contract is brought in front of a court of law, there is increased risk of one party (or both!) lying about the initial terms of the agreement. This is problematic for the court, as there's no unbiased way to conclude the case; often, this will result in the case being disregarded. Moreover, it can be difficult to outline contract defects if it's not in writing.
That being said, there are plenty of situations where enforceable contracts do not need to be written or spoken, they're simply implied. For instance, when you buy milk from a store, you give something in exchange for something else and enter into an implied contract, in this case - money is exchanged for goods.
There are some types of contracts which must be in writing.
The Statute of Frauds is a legal statute which states that certain kinds of contracts must be executed in writing and signed by the parties involved. The Statute of Frauds has been adopted in almost all U.S states, and requires a written contract for the following purposes:
Typically, a court of law won't enforce an oral agreement in any of these circumstances under the statute. Instead, a written document is required to make the contract enforceable.
Contract law is generally doesn't favor contracts agreed upon verbally. A verbal agreement is difficult to prove, and can be used by those intent on committing fraud. For that reason, it's always best to put any agreements in writing and ensure all parties have fully understood and consented to signing.
Verbal agreements can be proven with actions in the absence of physical documentation. Any oral promise to provide the sale of goods or perform a service that you agreed to counts as a valid contract. So, when facing a court of law, what evidence can you provide to enforce a verbal agreement?
Unfortunately, without solid proof, it may be difficult to convince a court of the legality of an oral contract. Without witnesses to testify to the oral agreement taking place or other forms of evidence, oral contracts won't stand up in court. Instead, it becomes a matter of "he-said-she-said" - which legal professionals definitely don't have time for!
If you were to enter into a verbal contract, it's recommended to follow up with an email or a letter confirming the offer, the terms of the agreement , and payment conditions. The more you can document the elements of a contract, the better your chances of legally enforcing a oral contract.
Another option is to make a recording of the conversation where the agreement is verbalized. This can be used to support your claims in the absence of a written agreement. However, it's always best to gain the permission of the other involved parties before hitting record.
Fundamentally, most verbal agreements are legally valid as long as they meet all the requirements for a contract. However, if you were to go to court over one party not fulfilling the terms of the contract, proving that the interaction took place can be extremely taxing.
So, ultimately, the question is: written or verbal agreements?
Any good lawyer, contract law firm, or legal professional would advise you to make sure you formalize any professional agreement with a written agreement. Written contracts provide a secure testament to the conditions that were agreed and signed by the two parties involved. If it comes to it, a physical contract is much easier to eviden in legal circumstances.
Freelancers, in particular, should be aware of the extra security that digital contracts may provide. Many people choose to stick to executing contracts verbally because they're not sure how to write a contract, or they think writing out the contract terms is too complicated or requires expensive legal advice. However, this is no longer the case.
Today, we have a world of resources available at our fingertips. The internet is a treasure trove of invaluable information, platforms, and software that simplifies our lives. Creating, signing, and sending contracts has never been easier. What's more, you don't have to rely on a hiring a lawyer to explain all that legal jargon anymore.
There are plenty of tools available online for freelancers to use for guidance when drafting digital contracts. Tools like Bonsai provide a range of customizable, vetted contract templates for all kinds of freelance professionals. No matter what industry you're operating in, Bonsai has a professional template to offer.
A written contract makes the agreement much easier to prove the terms of the agreement in case something were to go awry. The two parties involved can rest assured that they're legal rights are protected, and the terms of the contract are sufficiently documented. Plus, it provides both parties with peace of mind to focus on the tasks at hand.
Bonsai's product suite for freelancers allows users to make contracts from scratch, or using professional templates, and sign them using an online signature maker.
With Bonsai, you can streamline and automate all of the boring back-office tasks that come with being a freelancer. From creating proposals that clients can't say no to, to sealing the deal with a professional contract - Bonsai will revolutionize the way you do business as a freelancer.
Why not secure your business today and sign up for a free trial?