How to properly assess late fees?
January 9, 2012 9:11 AM Subscribe
When a client doesn't pay on time and I want to assess late fees, do I send them a NEW invoice for the original amount plus late fees, or an invoice for just the late fee itself?
90% of the time I am paid late because someone didn't send my invoice through the AP process in a timely manner (it sat on their desk for 3 weeks or something). So by the time my check is late and I follow up about it, the invoice is already in their system and will be paid in a few weeks.
The other 10% of the time, it's because the invoice was lost or whatever, so I can see submitting a new invoice for the amount plus late fees.
What do I do in the first scenario? I can't submit an invoice with the same # as the original, but including late fees, as their system will reject it. So I'm not sure what to do--I'm not sure what the standard accepted practice is.
And yes, I ask for confirmation of receipt of the invoice, but people rarely do that, even when I follow up a few days later.
90% of the time I am paid late because someone didn't send my invoice through the AP process in a timely manner (it sat on their desk for 3 weeks or something). So by the time my check is late and I follow up about it, the invoice is already in their system and will be paid in a few weeks.
The other 10% of the time, it's because the invoice was lost or whatever, so I can see submitting a new invoice for the amount plus late fees.
What do I do in the first scenario? I can't submit an invoice with the same # as the original, but including late fees, as their system will reject it. So I'm not sure what to do--I'm not sure what the standard accepted practice is.
And yes, I ask for confirmation of receipt of the invoice, but people rarely do that, even when I follow up a few days later.
Unless your follow up system for determining that the invoice was received is flawless, you don't necessarily know why your payment is late. And as far as I can tell, you don't really care why the payment is late except as it pertains to re-invoicing. Regardless of the cause for the delay, your practice is to assess late charges.
I think you're making this overly complicated. Any invoices that are still outstanding after 30 days (or whatever your limit is) should be issued a new invoice, including late fees, probably with a notation that this invoice replaces the earlier invoice #nnn. Then it's their problem to manage that through their AP system.
posted by DrGail at 9:35 AM on January 9, 2012 [2 favorites]
I think you're making this overly complicated. Any invoices that are still outstanding after 30 days (or whatever your limit is) should be issued a new invoice, including late fees, probably with a notation that this invoice replaces the earlier invoice #nnn. Then it's their problem to manage that through their AP system.
posted by DrGail at 9:35 AM on January 9, 2012 [2 favorites]
Response by poster: I do have a contract, but it only says how much they will pay, not when they will pay it. They are a large multinational and any tiny contract changes need to be approved by legal, and my contact isn't interested in dealing with that for whatever reason.
And I have found that most companies will not pay an invoice from a vendor that has the same invoice number as a previous submitted one by that vendor. It mucks things up. (I accidentally did this once which is why I know.)
posted by misanthropicsarah at 9:37 AM on January 9, 2012
And I have found that most companies will not pay an invoice from a vendor that has the same invoice number as a previous submitted one by that vendor. It mucks things up. (I accidentally did this once which is why I know.)
posted by misanthropicsarah at 9:37 AM on January 9, 2012
I do have a contract, but it only says how much they will pay, not when they will pay it.
Then, generally speaking, the client isn't really under any obligation to pay any late fees. You can't just submit an invoice for fees the client has never agreed to pay. If the contract doesn't specify when payment is due, then how can they be "late"? "Taking a long time" just means they're taking a long time, but "late" requires some particular due date, and you don't have one. Right now, there's probably no legal reason why they couldn't save up all your invoices and pay them all once or twice a year. The contract doesn't say they can't.
So it's not really a question of how to properly submit the invoice, because in the absence of a contract term which provides for them, there are no late fees. If you want to impose late fees for future work, you need to decide whether you're willing to fire the client in order to get that change made.
An option you might consider is instead of a "late fee" offering a "prompt payment discount," only having the resulting "discounted price" be within a few percent of what you were going to charge anyway, but going up 10% if the invoice isn't paid within 30 days. A lot of companies will balk at late fees but jump at these sorts of discounts, even though they amount to the same thing. See if the client will bite.
posted by valkyryn at 9:45 AM on January 9, 2012 [3 favorites]
Then, generally speaking, the client isn't really under any obligation to pay any late fees. You can't just submit an invoice for fees the client has never agreed to pay. If the contract doesn't specify when payment is due, then how can they be "late"? "Taking a long time" just means they're taking a long time, but "late" requires some particular due date, and you don't have one. Right now, there's probably no legal reason why they couldn't save up all your invoices and pay them all once or twice a year. The contract doesn't say they can't.
So it's not really a question of how to properly submit the invoice, because in the absence of a contract term which provides for them, there are no late fees. If you want to impose late fees for future work, you need to decide whether you're willing to fire the client in order to get that change made.
An option you might consider is instead of a "late fee" offering a "prompt payment discount," only having the resulting "discounted price" be within a few percent of what you were going to charge anyway, but going up 10% if the invoice isn't paid within 30 days. A lot of companies will balk at late fees but jump at these sorts of discounts, even though they amount to the same thing. See if the client will bite.
posted by valkyryn at 9:45 AM on January 9, 2012 [3 favorites]
But really, you've got a contract. If you want to explore your options under the contract, you need to talk to your lawyer.
posted by valkyryn at 9:45 AM on January 9, 2012
posted by valkyryn at 9:45 AM on January 9, 2012
If your contract doesn't specify how quickly invoices will be paid, there's no such thing as a "late" payment. If your contract doesn't specify that you are entitled to charge additional money for fees not paid after a certain amount of time, then unless there's a law in your jurisdiction that says otherwise, you're probably not entitled to charge additional fees for a bill that is not paid as fast as you would like it to be. You need to talk to your lawyer about your rights under the contract, and if you want to change the contract, you need to do that before you start trying to charge the client money they never agreed to pay you.
posted by decathecting at 9:49 AM on January 9, 2012
posted by decathecting at 9:49 AM on January 9, 2012
Coming from someone who is a freelancer and sends invoices on a regular basis, I have found that if you can do it...paypal invoicing and receiving payment through paypal is the way to go. This way there's a definitive record of the invoice and it's really hard for a client to give the run around..."I sent the check in the mail" or "I didn't receive the invoice"...bla bla bla. Of course, if you're dealing with a ton of money and a huge business, paypal may not work for you. And also receiving payment via paypal costs money. And the fees do add up. But accepting payment online has made receiving payments a lot easier for me. It's tough to get invoices paid these days. I still end up waiting 2 and 3 months for payments. But eventually I get paid. If the client gives you a lot of business and you generally like working with them minus the invoicing problems...I'd try your best to be patient and not too pushy. Definitely inquire about things after 30 to 45 days of no response. Be direct, but be polite. The more pushy or inpolite you are, the less likely your client will want to pay you in a timely matter, and more importantly...the less likely they are to want to work with you again. Changing your contract to clearly state a due time for payment and a late fee penalty for not paying on time might help...but I don't think it will help much. People will still pay late and will still try to get out of the late fee. It sucks, but it's just the way the world works.
posted by ljs30 at 9:57 AM on January 9, 2012 [1 favorite]
posted by ljs30 at 9:57 AM on January 9, 2012 [1 favorite]
I always send the same invoice with the late fees assessed at the bottom (so they have the new total amount due) and then I put a red stamp on it that says "PAST DUE" on it. Yes, even with the same invoice number on it. You can send a new one if you want, and just indicate what the late fees apply to but I never have. FWIW, after sending this invoice I usually get paid in my original amount and they don't pay the late fees about 75% of the time. If it is someone I'm going to work with a lot or that I like, they get a couple chances of that before I start getting anal retentive about collecting late fees.
For invoices mailed electronically, I made the "stamp" in photoshop and add it to the pdf invoice before sending.
ymmv but I've found that the mere act of stamping something "past due" encourages payment in ways I've never understood. I called one client 4-5 times to talk about their overdue invoice and always got the same "oh it's coming, it's coming, I swear" for weeks and weeks. Then I bought a past due stamp, I had a check within a week.
posted by magnetsphere at 10:00 AM on January 9, 2012 [1 favorite]
For invoices mailed electronically, I made the "stamp" in photoshop and add it to the pdf invoice before sending.
ymmv but I've found that the mere act of stamping something "past due" encourages payment in ways I've never understood. I called one client 4-5 times to talk about their overdue invoice and always got the same "oh it's coming, it's coming, I swear" for weeks and weeks. Then I bought a past due stamp, I had a check within a week.
posted by magnetsphere at 10:00 AM on January 9, 2012 [1 favorite]
From practical experience, chances of ever collecting a late fee is almost nil, all that will happen is you'll screw up your accounting with unpaid fees that will continue to accrue.
Levying charges is about the worst possible way to ensure prompt payment. Sending flowers/promotional item/whatever to the A/P clerk will pay way more dividends than harassing them with madeup late fees. Late fees will make them willfully angry, not inclined to pay promptly opposed to calling them to see how you can help expedite payment.
posted by Keith Talent at 10:02 AM on January 9, 2012 [1 favorite]
Levying charges is about the worst possible way to ensure prompt payment. Sending flowers/promotional item/whatever to the A/P clerk will pay way more dividends than harassing them with madeup late fees. Late fees will make them willfully angry, not inclined to pay promptly opposed to calling them to see how you can help expedite payment.
posted by Keith Talent at 10:02 AM on January 9, 2012 [1 favorite]
Best answer: Right now, at the top of all invoices from now on, create a one-row, two-cell table above the table that has the description of work and below the client's address. In the left cell, type "Payment Terms" and in the right cell type "Net 30" or whatever your payment terms are.
Now create a new invoice for the late client. In the middle part of the invoice, where you type in what you are charging them for, type "Finance charge on overdue balance at x.x%" with x.x being your charge. Then under that line, indicate the invoice number that is late, the amount it was for, and the date on that invoice. The grand total line should be your percentage multiplied by the amount that was due (not the original amount plus the late fee).
Then call the AP department and ask if they can walk you through this process. AP systems and procedures are different for each company, so you'll want them to see what you've done. Write that person's name down for handy reference later.
Without this in your contract, the bad news is that there's little you can do to enforce this. But, that's what an invoice looks like for a late charge. To push them to pay, you could let them know that the bills are so outstanding that you cannot do any more work for them until they are current. Before you do that, make sure you've got a good relationship with the client and approach it more as a "we've got a problem" than "you've got a problem."
posted by Houstonian at 10:08 AM on January 9, 2012 [1 favorite]
Now create a new invoice for the late client. In the middle part of the invoice, where you type in what you are charging them for, type "Finance charge on overdue balance at x.x%" with x.x being your charge. Then under that line, indicate the invoice number that is late, the amount it was for, and the date on that invoice. The grand total line should be your percentage multiplied by the amount that was due (not the original amount plus the late fee).
Then call the AP department and ask if they can walk you through this process. AP systems and procedures are different for each company, so you'll want them to see what you've done. Write that person's name down for handy reference later.
Without this in your contract, the bad news is that there's little you can do to enforce this. But, that's what an invoice looks like for a late charge. To push them to pay, you could let them know that the bills are so outstanding that you cannot do any more work for them until they are current. Before you do that, make sure you've got a good relationship with the client and approach it more as a "we've got a problem" than "you've got a problem."
posted by Houstonian at 10:08 AM on January 9, 2012 [1 favorite]
Right now, at the top of all invoices from now on, create a one-row, two-cell table above the table that has the description of work and below the client's address. In the left cell, type "Payment Terms" and in the right cell type "Net 30" or whatever your payment terms are. . . .
Without this in your contract, the bad news is that there's little you can do to enforce this.
Or, rather, basically nothing. So yes, that's how you go about making a late-payment invoice (and really, the reminder about payment terms is a good one), but sticking someone with a late-payment invoice without any contractual basis for it is just going to piss them off.
posted by valkyryn at 11:12 AM on January 9, 2012
Without this in your contract, the bad news is that there's little you can do to enforce this.
Or, rather, basically nothing. So yes, that's how you go about making a late-payment invoice (and really, the reminder about payment terms is a good one), but sticking someone with a late-payment invoice without any contractual basis for it is just going to piss them off.
posted by valkyryn at 11:12 AM on January 9, 2012
Questions on if charging late fees is possible or a good idea aside, from a practical standpoint, I would send a bill with the total amount owed with it itemized. That way, as long as they have a current bill in hand, they know that there isn't some other piece of paper that has other monies owed on it that they may or may not still have.
posted by Foam Pants at 12:01 PM on January 9, 2012
posted by Foam Pants at 12:01 PM on January 9, 2012
Response by poster: I would love to invoice via paypal. But this client only accepts paper/PDF invoices and will only pay by actual, physical, check sent through USPS. It's redonk. My other clients have an online invoicing system where I get paid 14-15 days after online submission.
I am trying to get them to change future project contracts to include language about paying in X days and late fees, but since they are a huge multinational there is a lot of red tape and is unlikely to get done.
I would NEVER assess late fees without having told someone up front that that was what would happen if they paid late. Other contracts with other clients have wording to this effect, but they have never paid late. So my question was mostly a "what if" type of thing.
posted by misanthropicsarah at 1:53 PM on January 9, 2012
I am trying to get them to change future project contracts to include language about paying in X days and late fees, but since they are a huge multinational there is a lot of red tape and is unlikely to get done.
I would NEVER assess late fees without having told someone up front that that was what would happen if they paid late. Other contracts with other clients have wording to this effect, but they have never paid late. So my question was mostly a "what if" type of thing.
posted by misanthropicsarah at 1:53 PM on January 9, 2012
Best answer: Ignoring all the should you or shouldn't you banter, you should probably list it as a separate purchase order on the same invoice.
Like
That way everything is a separate line item. Especially if, as you say, this is a slow bureaucracy, your check for PO#00001 is probably already in the pipeline. If you go and change the amount for that PO, that payment might get fouled up because now the numbers don't match. This way, they can call you and say "hey, we paid #00001, we aren't paying #00002," and you can graciously say, "goodness, yes, they probably crossed in the mail, I'll cancel it immediately!"
posted by gjc at 5:57 PM on January 9, 2012
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Previous Balance:
PO#00001..........Work done..............$2000.00
New Charges:
PO#00002..........Late fee on #00001.......$20.00
Total due: $2020.00That way everything is a separate line item. Especially if, as you say, this is a slow bureaucracy, your check for PO#00001 is probably already in the pipeline. If you go and change the amount for that PO, that payment might get fouled up because now the numbers don't match. This way, they can call you and say "hey, we paid #00001, we aren't paying #00002," and you can graciously say, "goodness, yes, they probably crossed in the mail, I'll cancel it immediately!"
posted by gjc at 5:57 PM on January 9, 2012
This thread is closed to new comments.
If you do have a contract with them, simply do what the contract tells you. If their system rejects your invoice number, but your contract doesn't include any terms about invoice numbering, guess what? That's not your problem. You did work according to the contract, and f*ck you, pay me.
It sounds to me like this has less to do with "standard accepted practice" and the idiosyncratic practices of this particular client. Or, more generally, what clients can and will do if you don't have a contract that spells out payment terms acceptable to both parties.
posted by valkyryn at 9:31 AM on January 9, 2012