Late Fees

[graemew]

We do drafting work for companies and send them the invoice after the project is complete. We give 30 days after sending the invoice to receive payment. Is there a standard for late fees? 10 percent of the unpaid portion of the invoice for every 2 weeks overdue, 15 percent every month, etc?

[Stv23658]

Our invoices state "Interest on Past Due accounts will be charged at the rate of 2% per month (24% per annum)." I only ever charge interest for seriously past due accounts.

My understanding is that in order to be able to charge interest, it must be stated on your invoices that interest charges will apply and at what rate. Otherwise you can't charge interest. Someone can correct me if that's wrong.

[spf1971]

We do drafting work for companies and send them the invoice after the project is complete. We give 30 days after sending the invoice to receive payment. Is there a standard for late fees? 10 percent of the unpaid portion of the invoice for every 2 weeks overdue, 15 percent every month, etc?

The maximum by law that you could charge is 60% per year or slightly under 5% per month (allowing for compounding).

[graemew]

Thank you for the replies, those are very helpful.

How exactly do you let the overdue client know that you are going to tack on this extra charge if it comes to that? Do you send him a new invoice with the additional late fee? Or is it common to inform him with a letter on my business's letterhead?

[graemew]

Also, if you compound monthly, it looks like 1.05^12 it comes to 1.7958, while 1.04^12 comes to comes to 1.6010, so does that not mean that it should be just under 4%?

Or do you only add the interest onto the base fee? Where 60/12=5%.

[matdwyer]

Thank you for the replies, those are very helpful.

How exactly do you let the overdue client know that you are going to tack on this extra charge if it comes to that? Do you send him a new invoice with the additional late fee? Or is it common to inform him with a letter on my business's letterhead?

I would do both, resending him the same invoice (same number) with the new charge, along with the explanation on letter head.

[spf1971]

You can't charge late fees unless you had disclosed this to them in advance. You can say that effective today any late fee will be charged an extra fee, but you can't charge anything for outstanding debt.

[graemew]

We haven't sent out any invoices yet so I don't have a current situation to worry about. Actually, we're not even a company yet. I am making our template invoices now and this got me thinking about late fees.