how to calculate service pricing based on time and materials when unpaid invoices pile up

Debt Collection & Unpaid Invoices
1

Been dealing with clients who drag their feet on payments lately. Got three invoices sitting unpaid for over 45 days now.

Starting to wonder if I should factor in potential late payments when I quote my hourly rates and material costs upfront. Like building in a buffer for the cash flow headaches.

2

Three unpaid invoices over 45 days? That’s rough. I learned this lesson the hard way after a client stiffed me for $2,800.

I don’t build late payment costs into my hourly rate because good clients shouldn’t pay for bad ones. Instead I handle it with terms:

  • Materials get marked up 20% to cover carrying costs
  • Payment due in 15 days, not 30
  • 2% monthly late fee kicks in after that
  • Big jobs need a deposit before I start

The markup on materials is where I build my buffer. If a client takes 60 days to pay for $500 in supplies, I’m not eating the cash flow hit. Good clients don’t care about the markup and slow payers cover their own mess.

Also started requiring payment before final delivery on anything over $1,000. Amazing how fast people find their checkbook when they want their finished work.

3

I just estimate costs and keep it simple.

4

Late payments happen. Just keep track of invoices and factor in those risks when setting your prices.

5

Stop working with clients who don’t pay within 45 days. Send them to collections and move on - you’re not a bank. I use a signed contract requiring payment in 14 days with 1.5% monthly late fees. Once they hit 30 days overdue, I stop all work and hand it to collections. Works way better than inflating your rates to cover deadbeats.

6

Cash flow problems will destroy you if you’re doing the work yourself.

I stopped playing games with payment terms. Half upfront before I touch anything, half when materials hit the site. Period.

Don’t bother with rate buffers. Get paid upfront and you won’t have late invoices eating you alive.

7

I’ve been burned by this too many times. Here’s what I do now:

  • Add 10-15% to my base rate for cash flow risk
  • Require 50% upfront for new clients
  • Net 15 payment terms instead of 30
  • Late fees clearly stated in contracts

The upfront payment is huge. It covers materials and some labor right away. For repeat clients who pay on time, I sometimes drop my rate back down after we build trust.

Don’t just absorb the cost of late payments. Make it part of your pricing structure or you’ll keep getting squeezed.