Whether a small business or a large one, one of the most frustrating yet necessary tasks is applying late fees to unpaid invoices. Applying late fees is a good way for businesses to make sure that customers are paying their invoices on time. To ensure that late fees are applied quickly and accurately, businesses can use an online invoice system. If you haven’t seen them before, online invoices make the whole invoicing process seamless and stress-free but let’s step back a little.
What’s a Late Fee?
A late fee is an additional charge assessed when a payment is not made within the specified timeframe. There are many reasons why customers may miss a payment deadline, so businesses may want to be flexible. Each company will set its own late fee policy and decide how it wants to apply late fees to invoices.
For example, a company may choose to charge a percentage of the original invoice amount or a fixed rate. In addition, there is often an option to waive the fee if payment is made within a certain period.
Common Reasons for Late Payment
As a customer yourself, you may have experienced the need to pay a late fee. Common reasons why customers don’t make payments on time include:
Unrealistic terms: The customer may have been offered an unrealistic payment plan that didn’t reflect the true cost of the purchase.
Lack of communication: The customer may not have been notified of the payment due date or amount.
Cash flow issues: The customer may have had a problem with cash flow that prevented them from making the payment on time.
Forgot: Everyone is human, and customers may simply forget to make the payment on time.
Once you’ve determined why a customer has failed to pay, it’s important to address the issue promptly and fairly. In most cases, it’s appropriate to charge a late fee for payments that are not made on time. Late fees are an effective way to encourage prompt payment and ensure that your business is compensated for the time and resources put into creating and managing invoices.
However, your payment terms need to be both fair and clear so that customers understand the consequences of not paying an invoice on time. In some cases, you might decide to waive late fees to maintain good customer relationships.
Applying a Late Fee
If you still use manual invoicing, adding a late fee can be a time-consuming process. With online invoicing, the process is much simpler. Once you create your payment terms, you can set up the late fee to automatically be applied if customers don’t pay by the due date.
To get started, you’ll need to determine the amount of the late fee and what type of fee it will be. Depending on your invoice payment terms, you might choose a flat fee or a percentage of the total invoice amount. Some vendors also offer an option to charge interest on late payments, which is usually calculated as a percentage of the invoice amount.
Once you’ve determined the fee and type, it’s time to set up the late fee. This is usually done through your online invoicing program, where you can enter the information and specify how it will be applied. You may also need to specify when the fee will start and if it will increase with each additional payment period.
After you’ve entered all the information, you can save and apply it to your invoices. This should automatically charge any customer who pays late a corresponding fee – you don’t need to manually monitor all invoices.
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