Been dealing with some overdue payments lately and trying to wrap my head around the actual financial impact.
Obviously there’s the missing money itself, but wondering about the hidden costs - like the time spent chasing payments, opportunity costs from not having that cash available, maybe even interest on credit I had to use to cover expenses.
Anyone have a solid approach for calculating the real damage when clients don’t pay on time?
Here’s what I do after getting burned a few times:
Track everything from day one:
Real example: $2,000 invoice 60 days late cost me $350 total. That’s $40 in lost earnings, $120 in credit interest I paid, and $190 of my time chasing them.
The eye opener? Some clients cost way more to collect from than others. Now I factor this into my rates upfront.
Also helps when deciding whether to write something off or keep fighting. Sometimes walking away saves money.
I just add up phone time and move on honestly.
I just do simple math. Take the invoice amount times whatever interest rate you’re paying on your business credit line or overdraft.
Then calculate how many hours you spent calling and emailing about it. Multiply that by your normal hourly rate.
Add both numbers to your invoice total - that’s your real cost.
I keep it simple. Count the hours you waste on calls and what you could’ve earned working instead.
I track exactly what late payments cost me. Started after one client hit 90 days overdue and I had no idea how much they’d actually screwed me over.
I use three buckets. Opportunity cost - what I could’ve earned with that money elsewhere. I use 6% since that’s what my business account pays. Direct costs - overdraft fees, credit card interest, anything I paid because their cash wasn’t in my account.
The third bucket hurts most - lost business. Every hour chasing deadbeats means I’m not finding new clients or helping good ones. I count this at my full hourly rate.
Worst case cost me nearly 40% of the original invoice. Now my payment terms make people think twice about paying late.
I’ve gotten good at spotting red flags early. Someone starts making excuses in the first 30 days? The math says dump them fast.
The real cost hits way harder than people realize. Take your invoice and tack on 2-3% monthly for cash you can’t use elsewhere. Add your hourly rate for every call, email, and collection attempt. Don’t forget credit card interest if you floated expenses because they’re slow to pay.
I track this stuff in a basic spreadsheet. You’ll see which clients aren’t worth the hassle real quick.