Late Fees

Late Fees are tricky. I had to deal with Indiana University Medical Center which initially ordered one unit. Then a couple months went by. When I gave them a friendly reminder (they were offering a formal study of our product, so I decided not to rock the boat) they upped the order to 3 units. Then the W-9 form came and went; then I cound out more and more hoops and forms to become a formal vendor with IU. So the who thing took 3 and a half months and created a large gap in our cash flow. I covered it, but that meant falling behind and adding debt.

So I promised no more of this. If we work with any kind of institution, I ask about anything to do with timeline and payments and I hold them to it. So far late fees have no become necessary.

I recommend you do the same for your business. If they have any trouble paying on time, make sure they understand they must call and talk to you immediately or a late fee will be assessed. Say it up front and there are no issues or arguments later.

piggybacking on Nancy's inquiry...

i was once told that one had to include the late fee clause in an agreement prior to services rendered or one cannot charge a late fee.

is this true?

My contract includes a 2% per month finance charge on any balances unpaid after 30 days. I got the wording from an editorial photography industry template, so I think that's somewhat standard for my industry.
There are also state laws governing the maximum but I don't recall what the maximum is in Washington state.
But most people I know, myself included, have had more problems with big accounting departments than with smaller companies that have more AP flexibility and fewer hoops ;-) Unfortunately, getting some clients to pay late fees can be more costly in terms of time expenditure than the fee.
But it never hurts to have legal standing.
I'll be curious to see if someone out there has found the solution to a) always getting clients to pay on time or b) always getting clients to pay late fees when they don't.

It may not be a perfect match but here's how we do it: Our statements show the age of the account balance. We decided not to charge Finance Charge for several reasons, mostly to do with collection and with the issue of people taking offense, but also to do with keeping track. Anyway, rather than a Finance Charge we stamp the statement with "Past Due" at the 30 days past due mark. At 60 days past due we stamp the statement with a collection notice (it will go to collection if we don't get paid in 10 days). Then if we aren't paid we turn the account over and forget it - it's no longer my problem.

As for the contractual agreement part, our patients sign that it is they that are responsible for their accounts regardless of insurance.; and I usually have to remind them to initial that particular statement (for some reason they all overlook it:-)

In my other business dealing with agencies, our contract says that if we don't get paid within, I think it's 45 or 60 days, we get interest at 12%. That been a pretty good incentive for them to pay on time, but they have paid us interest before.

DD

I haven't done net 30 billing in a long time (I do payment prior to service pretty much exclusively, with a few clients who pay half up front and half the day I deliver the product) but when I did I charged a 5 percent finance charge . . .and made sure it was in big bold letters on the agreement.

I don't think the number matters as much as the fact that you have a number.

In my industry there are no late fees.

However I have learned that all you have to do is ask. We are all so afraid of scaring away business that we are willing to shoot ourselves in the foot.

Ask for what you need, you will probably get it.

I had late fees and still have them in my contract, but rarely try to use them. Turns out people didn't pay faster and didn't pay the late fees 90% of the time.

Instead I adopted a few pronged approach:

1) Never provide goods without payment. 2) Put in the contract that you're allowed to collect full amount due PLUS collections fees. This must be in the contract but really protects you. 3) Under no circumstances provide any new goods or services to anyone who has outstanding bills.

Paying bills late is essentially a method for businesses to get free financing on short-term loans without permission. Simply take away the ability for them to be free.

The two methods we've had the best success with have been communications and finance charges. Proactive billing is the best. Identify the slow customers, gently confront them about it, and just accept that with those customers you will need to spent 10 minutes on the phone with them every time you invoice them, and sometimes also have to give them a call the day a payment is due.

As for finance charges, we bill net-15. After 15 days, a 5% finance charge applies, and every 30 days another 5% finance charge gets added on. You'd be surprised how many billion dollar companies happily pay these late fees. The larger the company, the worse the payment system.

If your customer won't pay on-time and won't pay the contractually obligated fees, talk to them about it once. If it happens again, cut them off, and refuse to do business with them again with any terms other than prepaid.

Nowhere is it written that one vendor must give free financing to the other... Well, except when dealing with local, state, and federal governments.

Hi Nancy,

My contract states a 1.8% per month late fee, as well as a powerful little clause that clearly states that all delinquent accounts will be turned over to an agent or lawyer for collections. As such, I haven't had payment issues in years.

I, too, get paid upfront by the majority of my clients.

After 30 days, I tack on a $25 fee. But a week before I send the invoice, I send an email reminder and mention the impending fee. The day before it's due, I do the same thing.

I had two clients in the same month that I used this process with. Once submitted payment the same day at the 11th hour, the other emailed me on the due date and then sent payment following week. (shrug) I haven't needed it since.

Until recently, I had no "fees" because most businesses buying mannequins paid up front. Lately I'm getting more POs and, unfortunately, more late pays.

I know I can't charge them anything for the time already passed, but is there a way to institute an "if you haven't paid within 30 days of (now), you will be charged an additional..."?

Michael- Does a collections agency include fees contracted for (above the cost of merchandise/service)?

And, if I make the policy that first-time buyers must pay at least 50% up front, can there be any legal issues for me if I then diverge from that policy and accept a PO, and they flake?

Getting paid is the hardest thing about a small business, in consulting, and I've never been successful at late fees. Instead, I resort to hounding.