If you provide a service online – whether it’s coaching, graphic design, or something entirely different – you are probably no stranger to the stress that comes with charging your clients or customers. Getting paid is a huge pressure point for business owners, especially small or new businesses to whom getting paid late can cause chaos.

I’ve talked to numerous other freelancers and other small business owners about this topic. They tended to be torn about whether or not late fees were helpful in getting paid on time. I myself have landed on the “pro” side of charging a late fee. I’ve only had to enforce it a few times, but it comes in handy when lighting a fire under a client’s butt when they seem to be letting my invoices collect cobwebs in their inbox.

If you’re still on the fence about charging late fees, know that there is no one right answer. It depends on your business and what feels right to you. If you’re weighing the benefits and downsides of implementing late fees, hopefully this will come in handy!

Pros

Incentive

This is the most obvious one. No one likes paying more, especially if they already have a set budget for the project. Explaining to your clients up front (and in their contracts) about the late fee policy will stick in the back of their mind. If they know your policy from the start, they will (hopefully) remember it every time they get an invoice and think, “Oh, I should make sure to pay this before that fee kicks in!” I’ve had people pay me early, just to make sure they don’t forget and get hit with a fee.

(Pro tip: Just having the fee isn’t enough. Make sure to have it clearly explained in your contract and at the bottom of every invoice you send.)

Compensation

Oftentimes, I can’t move forward with a project unless I’m paid. Whether it be a deposit that marks the start of the project or a final payment that marks delivery of files. Payment is an important part of a project’s timeline. If your client is late in payment, that can mess up the schedule you’ve set for yourself. You now need to spend time re-evaluating your day to day routine, especially if you’re juggling multiple clients and multiple deadlines. It took me a long time to consistently remind myself that my time is what I charge for just as much as my skill or products I provide.

Padding

Running a business isn’t free. It’s not even cheap. All the things that go into running your business smoothly cost you. If you’re a small or new business, you might have run into a situation where you know that if and only if your client pays you on time, you’ll be able to pay a bill or charge you owe. And if they don’t pay on time, you may incur a late fee or overdraft charge yourself. By having late fees in place, even if that does happen, you’ll be covered.

Cons

Customer Relations

Charging a fee is not fun to do. (Unless your client is a horror, then you might take a tiny bit of joy in it.) But 9 times out of 10, you’ll probably regret it. People typically don’t not pay on purpose. Maybe they lost the invoice or just forgot. To charge that individual more money for what may have been a simple oversight can really hurt the relationship. The client or customer may resent the fee or try to talk you out of it. If you hold your ground (as you should) it can really put a bad taste in the client’s mouth and ruin any future for referrals or continued business.

Automation

Unless you have a rather sophisticated tool for invoicing, you’ll have to monitor when payments are due and implement fees yourself in order to enforce them. I myself use Wave Apps which, as far as I know, does not automate late fees. I charge based on exactly how late the payment is. If don’t realize how late the payment is and I don’t go in and send them a new invoice for the fee, the process could completely escape my attention. Simply put, enforcing your fee takes extra attention you may not have.

Turn Offs

I’ve had clients (only one or two) flat-out refuse to work with me and back out of a proposal due to my late fee. Granted, mine is very high. But that’s because I want them to notice it, ask about it, and remember it. Once I explain that they can request a payment extension if they need to and the fee only applies if they just vanish without paying, they usually soften and agree. But, you may get the odd person who balks at the mere idea of a late fee. Those may be people you don’t want to work with anyway.

If you do plan on using fees, make sure to check with a local lawyer and find out exactly how much you can charge in fees based on where your business is based. The laws and rates change depending on location.

Do you use late fees? How have they turned out for you?