If you have an equal discount for early pay term and a grace period before the late fee you have presented as fair an opportunity as one should expect.
If you have a late payment fee in your customer agreement then you should move forward if the customer is not meeting agreed to payment terms. If not then you will need to do some work with your contacts in the company that you have developed a relationship with. In the future you should set payment terms with late fee schedule negotiated with the customer. Depending upon the industry you are working in this can range from 2-10% on a graduated scale depending upon how late the payment is being made. For example you may have 2% for over 30 days, 5% for over 60 days and 10% over 90 days. You should also remind your clients that the late fee is not a penalty it is to cover your costs of additional billing activity and follow up that would not be required if the customer paid on time in accordance with the terms of the contract.
Hi Lamar, If you don't already, consider a discount for your seasonal clients if they pay ahead, or have a monthly billing with a guaranteed service. This way your cash flow will improve dramatically and you can avoid some of the late bills. Have you contacted your customers personally about the billing? While this is not fun, it is an effective way to collect while at the same time making sure they are happy with your service. If you are going to institute a late fee, I would make sure that you communicate this very clearly at least one month ahead. Do you take credit cards? This would also be an option to charge the card at the time of service. There are several very easy options for card services that are not too expensive. This would also improve your cash flow. Good luck!
I'm not a great believer in late fees. I have always felt that if you are doing your due diligence on your customer base and utilizing sound collection and communication processes, delinquent or late paying accounts will be kept to a minimum. Many customers find your late fees just another way to increase profit and not a deterrent to payment methods. The fact that a long time "slow paying" customer is charged late fees becomes an annoyance that you end up writing off anyway. Price your products according to your industry and work with your customers. They will appreciate it and you will not create any hard feelings.
One alternative to instituting a late fee, is to offer a prompt payment discount. Turn the policy change into a collection effort by sending an announcement of this new incentive, and allow client's to apply it to any unpaid amount.
For example, adjust your standard invoicing terms to include a prompt payment incentive, of lets say 2%, if full payment come in Net15 or sooner. In addition send the announcement to current clients, with outstanding/overdue balances, and let them know they can apply the 2% to their entire balance, if full payment is received by November 1 (pick a date).
In my opinion, the only solution is payment before delvery. Unfortunately, even a good contract is not a deterrent for a bad payer. P
Usually every Obligation Law prescribes minimal percentage of penalties in case of payment overdue. This is possible to implement even if it is not contracted, "implementation by the force of the law". And of course, your customer will not be angry only if you keep quiet.
Put in the contract a line that they have to pay 2 months in front before you start. On the question why you can explain to them that you also have to pay the advisors concerning the questions you don`t have the answers for.
It is unlikely you will collect very many if any late fees; you are better off charging more if you expect a client to pay slow. The only value of late fees are if you have to sue a client to get your money; then the courts will award late fees if your invoice states clearly what the late fees are--copy from your credit card statement, because they're the best.
Business must have the mathematical formulas for every unique task, with respect to your question, its relation of following parameters:
1-Client business status.
2- Your work or product according to client.
3- your own business status.
4-Flexibility according to market.
these all things discuss with client at the time of agreement, so you can not lose client but you build confidence of client.
I generally include a 5% late fee in proposals and on all invoices. I put it there mostly as a negotiation point. If someone is late paying, I can give them a call and say, "Hey, I see you guys missed the due date on the last invoice. If you can get that in to me before the end of the week, I can get them to drop the late fee."
I rarely collect the late fee, but most folks are quick to pay when it means they don't have to explain the 5% overrun on an invoice (that would come to about $250 to $1,000 per invoice).
What is reasonable may depend upon the size of your invoices and the common practices in your industry.
Hi Lamar, I also have a business that deals with residential customers. I agree with David: if you can't get them to pay on time, then you won't ever be able to collect a penalty, no matter how carefully you spell it out ahead of time.
We require payment at the time of service (they can put it on a credit card). Still, sometimes people aren't there so we call them to remind them that they owe and that we expect to collect the next time. If they aren't there the next time then no service.
I've also been using a company called TransWorld Systems. They are a flat fee collection agency that's very effective (and cost effective) in these types of situations. You can blame the computer (it just does this automatically after x number of days). That way you keep the relationship and you train them to pay or you'll turn them over to collections. Message me privately if you want me to introduce you to my TransWorld representative. They have collected a lot of money for me that I was ready to write off as lost.
It still amazes me that you have to chase people for money. But you do. All businesses do. Best to include it in your process (i.e. no service for customers with outstanding balances, and keep making phone calls to people with outstanding balances). Imposing a penalty sounds enticing, but first of all you'll never actually collect it, second of all it's an icky conversation to have with your customers, and third of all you'll get better results from strong business systems that train your customers and reinforce the behaviors you want.
Let us know how it goes!
Depending on the industry you are operating in, you may impose a late charges between 1-2% is acceptable. Alternatively, you may demand a deposit upfront, with balance of payment upon commencement of work.
All the best in your collection effort.
I suggest your customers would respond better to your giving them a 1 - 1.5% discount for prompt payment. That way you can be fairly confident those who have a decent cash flow will take advantage of it, and the others will not get the discount. They are likely to be having to choose who to pay first, so a strategy of compassionate understanding is likely to be more successful than making their situation worse with penalties. You might want to use friendly reminder cards from a company like Send Out Cards, which allows you to select from a range of cards for this purpose, and they'll mail them out for you with your message and a scanned signature. Of course, you do need the option to hammer them with late fees if they're just messing with you. I used 1.5%/month (backdated to the date they became overdue) and found it quite effective as a last option.
Depending upon the type of service or product, sometimes having the client partly pay upfront (as in a deposit) helps eliminate slow paying customers. OR providing a significant discounts/savings for clients that actually pay in full in advance often works.
Not providing service or product until payment is received is another method.
I agree with Greg, I ran my own wholesale business for over 25 years with some pretty high annual volumes. Over half the business was on open 30 day terms. Even if you have a stated policy that the customer understands of adding a late fee monthly of 1 - 1.5%, I found that a small number of folks will actually pay those fees. The banks and other large institutions can get away with that...but it is hard to pursue those fees for a small business.
I suggest you work towards getting more sales on a credit card basis so you are not 'the bank' for your customers. It will cost you the 2.5% - 3% processing fees but there are no headaches or waiting for your funds.
You can also offer a small discount to get a customer running late to pay their bill NOW rather than dragging it out longer (I used to offer 5% discount just to get the bill paid up). Then you put them on Credit Card or Prepayment ONLY...no more open terms! This is usually for customers that are running 60 - 90 days or more past the invoice date.
I hope that helps..
Try a carrot instead of a stick! Increase you charges overall and offer a prompt payment discount (better Marketing & and an incentive too)!
It really should depend on how much their late return is costing you. If your product is less than $100.00 think in terms of $5-10. If the profit you are losing exceeds that then estimate and gradually increase it.
When you consider your cost of money and the time involved in reminders and collections, your late fees should be a lot higher than you think just to break even. During the recession, many of us have been very lenient and have sometimes suffered some major losses as a result. More importantly, we've enabled bad behavior in being thought of as a cheap source of funds by skipping payments. I think the best approach is to make your late fees high enough that you are not a clients cheapest source of funds and, therefore, should be one of the first to get paid. If someone gets more than 60 -90 days behind, you'll know there is cause for concern and can take appropriate action.
How much you can charge is severely limited if the client is retail. In some states the same usury laws do not apply in commercial transactions.
My suggestion: Develop a policy now for new clients that tells them they'll pay x percentage for each day past due for payment. For existing clients, you may need to suck it up if you are worried you'll lose them. Then again, perhaps by asserting your boundaries you'll show them why its important to pay you on time and more importantly respect you.