How to Define Late Payment Fees!
Hi there…So if you’re here reading this, we assume you’re an entrepreneur or small business owner looking for effective and efficient ways to encourage Fast- and On-time payments for your products or services by implementing Late Payment Fees. This Business Blog post will help you understand both the legal- and the business aspect of Late Payment Fees as an entrepreneur and small business owner, also the importance of defining and implementing this into your business.
As business owners, we understand the importance of having a healthy Cash Flow and we also understand the difficulty of being “that” debt collector to your (top) client(s). So in order to secure a healthy cash flow and avoid becoming that horrid debt collector lets discuss the aspects of having this in-place and the importance of it! Read on…
Depending on the field of business, whether B2B or B2C law provides the legal percentage and the appropriate timeframe of when, how and what you can be applied to late payment fee. Visit your local Chamber of Commerce!
>>> Consider this: Where I live an invoice is issued and can have a payment term of 14 - 30 days. In some countries, a 30-90 days term is applicable anything shorter than 14 days will give your client less time to manage their books. Applying a late payment fee would be as followed:
1. Issue first reminder after [due-date + 14 days]. This would be a 14+14 or 30+14 strategy. You can call your client and kindly remind them of the open-invoice and request payment.
2. Your second reminder applies to the same strategy [+14]. This would be 28+14 or 44+14. You can email your client and avoid extra charges, while [bonus] you’re also documenting forms of communication. Unless otherwise is agreed on beforehand in your contract or Terms & Conditions. If this is mentioned beforehand, by signing client has already agreed upon the extra fee. Always refer to initial agreement!!
3. A third reminder in some case can be applied before pursuing legal measures by hiring a debt-collector and here you are entitled to bring all charges made as a result of, at the expense of your client. In this case, you can choose to send a letter which requires a signature as proof that it has been received.
In order to document and display a healthy cash flow within your business, it’s essential for the numbers to add-up! Your invoice should match your income. This is a confirmation that you’re successfully running your business and can be used for a loan or simply as a reminder to yourself. Simple as that!
Furthermore, having a Late Payment Fee can actually help your business. People and businesses have a preference when it comes to professionalism therefore by defining and implementing a Late Payment Fee, your (potential) clients will recognize your value and respect this.
We say…Revisit and revise your contract or Terms & Conditions, simply add or revise a paragraph. Do consider your branch of business, the sector in which you operate and also the type of relationship you have with your clients. Define your Late Payment Fee, continuous mention this throughout communication in your email or/and on your website.
Keep it SIMPLE and make it PLAIN as possible. At the end of the day…IT’S STRICTLY BUSINESS!