CHASING LATE PAYMENTS AS A FREELANCER: HOW TO PROTECT YOUR CASH FLOW

Chasing late payments is one of the most frustrating parts of freelancing. It’s a drain on your time and energy, but it’s absolutely crucial for keeping your business running smoothly. While some overdue invoices may be the result of honest mistakes, it’s vital to stay on top of payments to maintain your cash flow and financial stability.

Here, we’ve put together a comprehensive guide to late payment fees and how they can help protect freelance professionals.

What Are Late Payment Fees?

Late payment fees have been around since the late 1980s under The Late Payment of Commercial Debt (Interest) Act 1988. They’re not compulsory, but they are generally considered good practice. In 2002, the Act was updated to include fixed penalties in addition to statutory interest claims. These fees aim to offset the financial impact of late payments and encourage clients to pay on time.

How Much Can You Charge in Late Payment Fees?

Under UK late payment legislation, you’re entitled to charge:

• Fixed penalties based on the size of the debt.

  £40 for debts < £1,000

  £70 for debts £1,000–£9,999

  £100 for debts > £10,000

• Statutory interest of 8% plus the Bank of England base rate.

It’s important to note that you can only charge the business once for each late payment. The government’s website also offers a helpful formula to calculate penalties and statutory interest.

When Do Late Payment Fees Apply?

Payment terms are typically agreed upon in advance as part of your client contract. For example, many freelancers include a 30-day payment term on invoices. This means the client must pay within 30 days of receiving the invoice.

If the agreed payment date passes, the invoice becomes overdue. For example, if payment was due on the 7th of the month, it becomes a late payment on the 8th.

What If There’s No Agreed Payment Date?

If you didn’t agree on a specific payment date, don’t worry. Legally, a payment becomes overdue 30 days after the client receives the invoice or the service is delivered, whichever is later. You can claim statutory interest on late payments for up to six years in England, Wales, and Northern Ireland (five years in Scotland). Of course, waiting that long is far from ideal, so it’s better to stay proactive about invoicing.

How to Charge Late Payment Fees

If a client misses a payment deadline, you can charge late payment fees by issuing a separate invoice. This invoice should include:

• Details of the original unpaid invoice.

• A breakdown of the late payment penalty.

It’s not an amendment to the original invoice but a standalone document for the penalty amount.

Do You Need to Notify Clients About Late Payment Fees?

You’re not legally required to warn clients about late payment penalties in advance. However, for the sake of maintaining good relationships, it’s helpful to let them know your policy.

Government advice suggests adding this text to your invoices:

“We/I understand and will exercise our/my statutory right to interest and compensation for debt recovery costs under the late payment legislation if we/I are/am not paid according to agreed credit terms.”

If you’re nearing a payment deadline and haven’t heard from your client, start with a polite reminder. Reach out a week before the due date to:

• Remind them of the upcoming deadline.

• Mention late payment fees without being overly formal or aggressive.

Always assume the client has simply forgotten to pay—most late payments are innocent oversights, not intentional delays.

What If the Client Doesn’t Pay the Late Fees?

The late payment legislation is designed to prevent clients from exploiting loopholes. If you’re facing significant issues recovering late fees, you can:

• Seek advice from a professional body or legal representative.

• Consider court action as a last resort.

While legal action is an option, it’s best to avoid letting things escalate to that point if possible.

Key Takeaways:

Chasing late payments can be a hassle, but it’s an essential part of running a successful freelance business. By understanding your rights and implementing clear payment policies, you can protect your cash flow and minimize the impact of late-paying clients.

• Stay proactive about invoicing and follow up on overdue payments promptly.

• Use clear contracts and invoice terms to set payment expectations.

• Consider adding late payment penalties to encourage timely payments.

Have you dealt with late payments as a freelancer? Share your experiences and tips in the comments below!