Are you tired of chasing late payments? Nothing wastes time and energy faster than chasing down late payments.
The good news is that most of these headaches can be prevented if your contract is clear from the start. Because the problem usually starts with unclear or incomplete contract payment terms.
In this post, I’ll show you how to build payment protections into your contracts so you get paid on time, protect your cash flow, and avoid awkward follow-ups.
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Always have clear payment terms
The truth is that contracts without real payment clarity equal awkward conversations and shaky cash flow. Because while money is emotional, your payment terms shouldn’t be.
And that’s because most late payments start with unclear terms. If your payment schedule is vague or not tied to deliverables, clients can delay without consequences.
So the first step is writing clear payment terms.
But how do you write payment terms that don’t result in shaky cash flow and awkward conversations?
You start with the most important information: what’s due and when. And you write it in simple, plain, clear English.
I’ve talked many times about how I recommend a contract cover page.
On this cover page, you put important details that clients care about so they don’t have to hunt and peck and find them in your contract.
Instead of searching, they can scan your cover page, with its simple, plain English, big headers, and bulleted lists, and find exactly what they are looking for.
They’ll know what they will get from you and what you need from them. And payment terms are one of those things that should be on that cover page. (You can see what else you should include here.)
Structuring payment terms
Your payment terms, just like everything in your contract, should match your business and your workflow. It shouldn’t just match the calendar.
I recommend tying payments to something trackable, like a deliverable or a milestone. But if you work on retainer, then tying it to a calendar date makes the most sense.
You just need to be consistent in your contract and have things either tied to something trackable or to calendar dates. Don’t mix and match them, because then it gets confusing for you and your client.
How to avoid late milestone payments
When I write contracts, I always make sure the final payment is due before the final deliverable is sent. For example, the final design files are delivered after the final invoice is paid.
Why? Because the client has a bigger incentive to pay, because they want the final deliverable. Once you’ve given them the final deliverable, they no longer have that same incentive to pay because they got what they wanted.
This means if you tie payment to deliverables, then you won’t have to chase down payment. Because your client wants the outcome they hired you for. They want that final product, and so you are able to incentivize them to make that payment by making sure that you are delivering something after they pay.
If you want short, client-friendly payment reminders that back up these terms without burning bridges. Then on Day One of the Copy + Paste Legal week, I give you those exact email scripts. Join using the form below.
How to avoid late retainer payments
If you are working on a retainer basis or need to provide the deliverables before payment is due, how do you avoid late payments?
The simplest way to avoid them is by stating in your contract that you have the right to pause all work once payment is late. Sometimes you include a grace period to account for holidays or weekends, and pause all work if payment is not made within X days of it being due.
This way, if the client pays late, then you can just send an email stating, “Just want to remind you that payment was due last week. Until payment is made, all work on your project is paused.”
If they have work that they want done, I can guarantee that pausing work will make it more likely that payment will shortly be hitting your account.
And if they were a bad seed trying to get work for free, then you won’t be digging yourself an even bigger hole of unpaid work.
Some creatives choose to add a restart fee on top of pausing all work. And state that the restart fee must also be paid before work starts again.
Never add a huge late payment interest percentage
The thing most people do wrong when it comes to late payments is charging a high interest fee for late payments.
Every state has what’s called a usury law. Usury laws say how much we, as private citizens, can charge interest.
And so you need to make sure whatever number you insert into your contract is legal under your state’s laws.
Sadly, this number isn’t all that high. For example, California’s works out to 0.83% a month. Any amount higher than that is illegal under California law.
Now, sometimes my clients want to put a bigger number in there to kind of incentivize clients to pay on time. But if you do put that bigger number in there, then you need to know that’s not going to be enforceable if you take the client to small claims court to try to collect those late payments.
Not about scaring or punishing clients
Remember, your payment terms aren’t about scaring or punishing clients.
They are there to protect your time and cash flow. Because you deserve to run a sustainable business.
Want a shortcut? Inside Copy + Paste Legal Week, you’ll get ready-made email scripts for following up on payments while keeping relationships intact. Sign up below.
Hi! I’m Kiff! I’m your friendly legal eagle (and licensed attorney).
My goal is to add ease to the legalese. And because I think basic legal resources should be available to every creative, I create a lot of free content.
If I’ve created something that has helped inject a little ease into your creative business and you would like to say “thank you”, you can make a contribution here.
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