How and Why You Should Charge Late Fees

October 10, 2019
When companies operate in a business to business or B2B space, it can be difficult to decide whether or not to charge late fees. You don’t want to risk upsetting a loyal client or charging them for an invoice that got lost in the mail. However, every day that you are waiting to be paid is another day that you are relying on other companies to pay on time and keep your business afloat. The decision to charge late fees isn’t an easy one, but we are here to help.

Why Is Your Customer Paying Late?

Before deciding whether or not to charge late fees, you should first think critically about why the customer is paying late. If a customer is temporarily unable to pay on time because of a temporary decline in business or owner illness, a payment plan might be a better solution than late fees. However, if a customer has a chronic pattern of paying late due to simply forgetting to put the check in the mail, that could make late fees more appropriate. Many businesses that start to charge late fees are surprised to learn that many late-paying businesses simply do so because it benefits them and there have been no consequences for doing so in the past. Once a consequence is presented, there is no issue paying on time.

Why Should You Charge Late Fees?

Your business relies on income from your clients to pay your employees, make the products and services that other businesses are purchasing and cover all your critical business expenses. As a result, it’s critical that you collect in a timely fashion. Having no policy for late payments or ignoring the problem entirely can quickly bring you to a place where you have numerous past due accounts and not enough money to cover your vital expenses.

When Can You Assess Late Fees?

It isn’t appropriate or responsible to start suddenly adding late fees to an invoice. Instead, you need to explain in your original contract or client agreement that you may charge late fees and other incidental charges. In addition, these charges need to be detailed in a dollar amount – not a percentage – on the last invoice you send to your client before turning them over to collections. Check with your legal counsel regarding specifics for your state. Ensure that you inform all of your clients in writing of the amount of late fees that can be charged (a flat rate or a percentage) and the time frame for which they will be charged.

How Should You Charge Late Fees?

If you are adding a late fee clause to your contracts, inform all of your existing clients of the new policy moving forward. In addition, you could add an incentive for on-time payment, like a small discount for payment immediately upon receiving the invoice.

Can You Avoid Late Fees?

If you aren’t sure whether or not late fees are right for your business, you could also explore alternatives to charging them. Many businesses partner with professional collections services to follow up with unpaid invoices and collect or create payment arrangements. When you work with a professional company, you will benefit from their experience organizing and streamlining the collections process. Another strategy could be adjusting your invoicing procedures to account for late payments. Offer payment plans up front or a discount for payment by a certain date.

Partner with Alacrity Collections for Excellent Collections Services

Alacrity Collections is proud to be a leader in debt collections since 1982. We achieve great results that are over twice the national average. We work tirelessly to protect your brand and improve your net returns. To learn more about our services, please call us at 1-800-752-9663 or set up a phone appointment directly on our representative’s calendar via this link: www.calendly.com/hheemann.

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