I had a large client - combined volume in millions - who was not charging late fees!
“What!” I belched.
“We don’t wanna lose customers. A lot of our customers are mom and pop. We have never charged a fee for being late,” was the finance guy’s argument.
“What else?” I was incredulous.
He was a little shocked at how I glossed over that. “And, how would we measure it, collect them, begin it - are their legalities?”
Listen to me closely…
I cannot find a good argument for your business to not charge late fees. You will not lose customers. Trust me. Your service and your product is the best, right? So you should be paid ON TIME!
If you have an account, NET 30 let’s say, and it is now late - not only are you out the money you expected by a certain time, you now have to pay someone to call on the account and collect. Lose, lose. How can you mitigate this? Late fees.
No one will be shocked that your outfit charges this fee. We are all used to paying them: credit cards, utilities, rent, even the library. Why are you different?
In fact, in some instances charging late fees will decrease DSO.
Remember: Our payment policies and billing policies teach our customers how to pay us.
Tracking, reporting, trending late fees? No big deal. Any accounting software worth its spreadsheets will have these abilities - and more.
The amount? Of course here you need consultation and discussion (hint - call me). I have seen as little as $10 up to $100 or more.
The trick is if you have not been charging a late fee to announce in advance that you will be. 30+ days at least, and not in the middle of a billing cycle. Post it on statements, to the sales staff, brochures, order forms. Then stick with it.
Crunch this: 1,000 accounts in 2010 paid late (past their Net 30 or 60). Between the 2nd and 10th day late (you decide “grace period” if any - they just generously had NET 30/60 after all) they were assessed a $20 late fee. 600 accounts ended up paying before the end of that cycle. By then end of 2010 you received $12,000 in collected late fees. You just paid almost half of your A/R clerk’s salary. And you taught clients that your product is worth paying for on time - or early!
JLOverbey@gmail.com
Twitter: @HeyOverbey
