When can I charge late fees or finance charges?

Collecting late bills

I have a client who is more than 60 days past due on payment. We signed a written agreement when I started the project, which provided for me to be paid half of my fee up front and half on completion. Now that the work is done and they haven't paid, can I charge a late fee? If so, how much can I charge?

You've certainly hit on the biggest complaint of most freelancers: clients who won't pay up. Late fees are certainly one good way to discourage this kind of behavior, but they aren't appropriate in every situation.

You should assess a late charge only if the client knew, at the outset, that you reserved the right to do so. For example, if your written agreement provided for this possibility, or if you have done other work for the same client and charged a late fee without any objections, you can charge a late fee now. Also, all of your invoices should include the phrase "Accounts not paid within terms are subject to a __% monthly finance charge."

A late fee is normally assessed as a monthly finance charge. Figuring out what to charge is a two-step process. First, divide the annual interest rate you want to charge as a late fee by 12 to determine your monthly interest rate. Next, multiply this monthly rate by the amount due to determine the amount of the monthly late fee. For example, if the annual interest rate is 12%, the monthly interest rate is 1%. If a client owed you $10,000, you'd multiply this amount by 1% to figure out how much the client owes you every month as a late charge. One percent of $10,000 is $100, so the client would owe you an extra $100 for every month his payment was late.

You state might restrict how much you can charge as a late fee. You should be okay, however, as long as you charge no more than 10% per year in late fees.