3% of the unpaid balance.
Keep in mind that the cost of collections can be up to 10%.
My suggestion is to explain that you sold your products to them in anticipation of them honoring your terms of sale. Your prices have been established in anticipation of on time payment. Unless you receive payment immediately you will have to impose a late fee to offset the costs you are incurring due to their late payment.
First, you need to tell people up front. No "post facto" assessments. Then, I would create a formula something like, short term interest rate + inflation rate + opportunity cost (say 1%) and charge them that. You might even want to spell it out. If they understand where you got the late fee, they "might" be quicker to pay.
I had this same issue with a few customers. How we solved this issue was we gave a 1% discount to all customers that paid on time we added a 4% charge for any late payments with a minimum of $25 Fee. Only one customer got upset with us called yelling that he would take his business elsewhere. I asked him if his bank charged him a late fee if his mortgage or truck payment were late his response was they are never late to which I followed up with why should we be the exception. He has never been late since.
Getting your receivables under control is vital for any business. All of the advise given so far is applicable, but in order to truly manage your receivables I would recommend you take a course in Accounts Receivable to enable you to put together a comprehensive policy that not only deals with late payments but prevents them in the first place.
How about instead of a 'penalty'...you offer a discount for early payment.
When I was a landlord, instead of charging my tenants a 'Late Fee' I offered a discount for early payment. Bear with me...The market demanded a rent of $700 per month. We imposed a $50.00 fee for rent paid after the 5th of the month. What we did was changed the next lease to $750 per month, due by the 5th of the month. Tenant may enjoy a discount of $50.00 if rent is paid on the 1st.
Worked like a charm!
To avoid any discussions is to start with clarity in your general conditions, on invoices and of course in agreement of the job, delivery of services or any other activities.With personal calls or reminders (every 30 days) you can start a legal process if necessary.
You need to build documentation about case like this and even a strategy and patience, but at the end of the day you will learn and avoid such experiences in the future by selecting your clients better and tell them upfront what your rules are.
We decided to use a collection agency after a certain period of time as we need to be focused on our work and core business.The client needs to understand that your rate is based on correct and respected payment terms.
If your client is not able to pay, then find a way in steps or time frame to pay off the debt.
Success in your smart decisions
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.
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.
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).
Richard Stern-Unless the late fee has been noted on the company Purchasse order form as part of the Terms and Conditions of the contract I do not think you can charge a late fee
Suggest you discuss this issue with your Attorney.
Why not implement a late fee policy and update all the customers.People do not want to spend extra money.. what this will do is reduce the amount of late payments.
Ask your customers to set up a direct debit to be paid on a certain day every two weeks. If not, give plenty of warning and honesty is best policy...most will understand.
I agree with those who say you must state a late payment penalty upfront.
Can you put people on an automatic renewal? I don't know if that applies to your business or not.
But, a big thing to keep in mind is this: Paying within 30 days was once considered the 'norm.' Today, payment within 120 days is often considered the 'norm.' Do you know what time frame your competitors' consider a 'late payment'? Keep in mind, too, who pays your customers. If they are funded by government -- well, governments have been known to delay paying vendors for years.
I call my customers and request them to pay me with credit or debit card if they have been late by more than 15 days. And the next order they place, it is strictly on COD.
Tell them if they are late more than once or more than one week (or whatever) they must pay ahead in the future.
Hi Lamar, explain per letter to all your customers that, due to the Economic depression, you have no choice but to begin a late payment charge fee. Point out that, just as you do not tolerate your team providing late services to them, so too, do you expect prompt payment. Prompt service = Prompt Payment.
You can do a late fee imposition on a sliding scale. first month non payment, 1%. Second month non payment 3% and so on. this will incentivise the accounts department to pay promptly or face the wrath of the Managing Director.
Same question for me: I was just stiffed for $10k plus travel, and it is the first time I have not been paid. 120 day delinquent. It has gone to legal and I was thinking of getting on the list over 90 a delinquent list which their bank won't like, but I believe a monthly interest rate and a late is appropriate. Thoughts?
In business terms the late fee could also be called a surcharge or discount with terms of NET 30 or NET 45 and sliding scale fee of 1.5 - 2%.
It could also be presented as a " 2% discount" if the invoice is paid in 30 or 45 days. The clients will usually wait till the last day of the term to send the check.
Even then the clients will try to request for a fee waiver, which could be done at the discretion of the CFO and the importance of the client.
I would try to give them better credit terms to make them pay faster say like 2% 10th Prox...If they cannot meet that request be careful...Figure the cost of money plus the opportunity cost lost for other clients who pay you on time...I would go to the wall with those who are stringing you out...