Accounts Receivable: Pros and Cons of Late Fees

Late fees can seem like a simple tactic to encourage people to pay on time. It is normal in many industries and less common in others. 

Before deciding on whether or not late fees are right for your business, look into the legal issues for your state and what the standard amount is for your industry. Make sure that you are extremely clear both in your contract and communications if you decide to charge a late fee.

Pros:

Encourage on-time payment. People are more likely to pay you by the due date if they have to pay you more later.

If they pay late, you get a little more money for the inconvenience. Nothing is better than paying on time, but if you have to deal with delinquent payments, at least you get something for your trouble.

Cons:

You may scare off customers. Some people just refuse to work with companies who charge late fees.

You will get irritated phone calls. Someone will call and complain about having to pay the late fee. Your staff member has a couple of customer service options at this juncture: enforce the late fee or waive it. Your customer will be happier if you waive it, but be careful not to create a precedent for tolerating late payment.

You need to enforce the late fee. What is the point of a late fee if you don’t enforce it? It sends a poor message to your clients in poor habit payments if you say you will do something then don’t.