Unlock The Power Of Late Fees
One of the harshest realities of being an entrepreneur is the fact that not everything is under your control (I know, right?). There will be times when a client isn’t going to behave exactly as you wish they would, and that frustration can drive you around the bend AND destroy your finely tuned professional process.
For cases where you need to motivate a change in behaviour, and cover your tush from a financial standpoint, here are 3 ‘situations + solutions’ to help out.
Situation 1: The Client that doesn’t pay
Solution: Grab that contract of yours and enforce the late payment clause (you’ve got one, right?) that the client agreed to. Key components of the late payment clause are:
- When the payment is due
- How much of an administrative fee the client will be charged
- Any other withholdings that will apply
For example: “Payment is due within 15 business days of receipt of invoice. An administrative fee of 5% will apply for each day payment is delayed. All final designs and work product will remain property of The Ambitious Entrepreneur until payment of initial amount and accumulated fees is received in full.”
Sometimes setting the late payment fee as a fixed dollar amount is preferable (because charging a percentage that works out to $1.28 a day isn’t really worth your time in making the invoice). You could use ‘the greater of $25 or 5% a day’ for example.
Send a ‘heads up’ on the day the invoice is due as a friendly reminder to the client, and then follow-up with a revised invoice for the late fees in 2-3 days. Need to take it further? Check out this article on handling late paying clients.
Situation #2: The Client takes forever to give you materials and decisions
Solution: Having a well fleshed-out contract can be your lifesaver in cases when a client is dragging their heels in getting back to you with photos, copy, or even a decision on how they want to move forward in the project. Build in a work schedule, and list the expected turnaround times for client materials and decisions as well as the expected end date of the project.
Web copy is due on January 15th? Spell it out. Need to know what color they’re going with inside a 72hr window? Put that in there.
Your protection as an entrepreneur is two-fold:
- Make it clear that all work will be put on hold while you’re pending their decision
- Include a delay fee for every week their slow movement puts you behind schedule
The delay fee can be a fixed dollar amount for every week, and a good rule of thumb is to have it be equal to approximately 5-10% of the overall project value. Now that’s motivation to stick to schedule!
If you’re getting ready to apply fees to a client for being late to respond to you, then you better make sure you’re 100% on time to them! If a client is hesitant to sign a contract with delay fees, you should be confident in signing up to your own delivery guarantees – fair is fair.
Situation #3: The Client vanishes
Solution: This situation goes well beyond a few late emails and missing stock photos. And it happens surprisingly often. You’re in the middle of a project and all of a sudden the client disappears. Nothing. No answers to emails, voice mails, or Tweets. Because you’ve been paid up front for all, or a portion of your work, you’re not too concerned about them stiffing you on the bill…but you’ve got other work lined up and you’re worried about fitting it all in if they suddenly re-appear and try to press play.
Again, your contract will be a lifeline here. Including a dormancy clause can set out a clear definition of what constitutes a ‘dead’ project, and what actions will be taken.
For example, your dormancy clause can include:
- How many weeks a client needs to be incommunicado before the project is dead
- What restart fee applies to re-open and jump-start the project
- What kill fee applies if there’s no resuscitating the project
- A clear statement that the original project delivery date is subject to change
Re-start fees and kill fees are essentially administrative fees that you’ll change a client for them being a pain in the butt when it comes to keeping the project moving. A good rule of thumb is to set them at 10-25% of the total project value so that they have ‘teeth’. Anything smaller is likely to get you a ‘yeah yeah, whatever’ reaction…which doesn’t get you much farther ahead.
Even with the best intake procedures and the strongest client fit spidey senses, occasionally one of these situations will pop up in your business. Give yourself a few hours to get huffy and bent out of shape about it (we’re all human!) and then get down to the business of taking action on the policies you’ve got in place to minimize impact and disruption. And as for what to do with those late, restart and kill fees you’ve collected? Splurge on a nice bottle of wine or a massage to make getting over the hassle even easier.
Onwards and upwards Ambitious Entrepreneur!