What is a reasonable late fee to impose on a customer?
We have quite few slow paying customers and want to institute late fees. How do we implement this policy with angering or losing customers?
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Sep 18, 2014
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.
Sep 18, 2014
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.
Sep 18, 2014
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!
Sep 18, 2014
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.
Sep 18, 2014
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).
Sep 18, 2014
In my opinion, the only solution is payment before delvery. Unfortunately, even a good contract is not a deterrent for a bad payer. P
Sep 18, 2014
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.
Sep 17, 2014
Lamar,
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.
Sep 17, 2014
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.
Sep 17, 2014
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.