-
How to handle late charges?
How do you handle late charges? To date, I’ve added 10% after 30 days past due and sent a new invoice with the total outstanding balance and a new due date. Today, I received a request from a particular client saying that the “proper way” to do this is to just send a new invoice for the amount of late fees. This got me thinking, so I wanted to pose the question here.
Backstory:
I recently did a project for this client and billed weekly. The project went about 10 weeks and due to the deadline coinciding with my own vacation I completed and delivered the project before any of the payments came in. (I was comfortable doing this because this is the 7th or 8th project I’ve done for this client in the last 2 yrs)
Also note that I have held all original source materials as a condition of payment – so I’m no dummy.Anyhow, while I was on vacation the first invoice came due. I returned from vacation and found it was not paid. I sent a friendly reminder email and got a reply that money was tight for them. Okay fine, money’s tight all around and I really have no choice but to wait for it. I waited 30 days beyond the due date before taking any action. (I also include on all invoices that a 10% late fee may be assessed on any outstanding balances not received by the due date – so the client is aware and I’ve given them more than enough time)
For example, the first invoice was billed 6/20 and due 7/20, I waited until 8/29 to send a new amended invoice for the original amount plus late fees. The new due date for the new outstanding balance was 9/28. I’ll be adding another 10% and sending that at the end of this coming week.
Based on my prior experience with other billing systems (ie, medical) if you don’t pay the balance in full by the due date, then you get a new bill with an “adjusted” balance and a new due date. To me, that is fairly logical and common practice. My client’s request today to send only a new invoice with the late charges puzzles me and I was wondering what others in our industry do?
Is there a better way to bill late charges that I’m not thinking of? I’ve been fairly lucky in that I don’t have to add late charges very often, so when I am faced with this type of situation I’m always unsure whether or not I’m approaching it the right way.
Thanks
Kenton VanNatten
Avid Editor (for hire) -
16 Replies
-
Anytime a client requests a new invoice with a higher balance from me, I send a new invoice with a higher balance.
-
Well, yes… of course. My question is whether or not you send an invoice reflecting only the late fees or send a new invoice with the late fees added to the previous balance and now showing the new outstanding balance.
Kenton VanNatten
Avid Editor (for hire) -
[Kenton VanNatten] “My question is whether or not you send an invoice reflecting only the late fees or send a new invoice with the late fees added to the previous balance and now showing the new outstanding balance. “
New invoice showing everything. Original fees and total, Late Fees, New Total.
Also a note in the invoice that late fees will continue to accrue at X% on ___ day of each week / month, etc…..
Walter Biscardi, Jr.
Editor, Colorist, Director, Writer, Consultant, Author.
HD Post and Production
Biscardi Creative Media“Foul Water, Fiery Serpent” now in Post.
Creative Cow Forum Host:
Apple Final Cut Pro, Apple Motion, Apple Color, AJA Kona, Business & Marketing, Maxx Digital. -
Thanks Walter, that’s how I had previously been doing them for the last 3 years. Then I got an email from this one client who is late and he tells me that “the proper way to do this, btw, is not to supersede an earlier invoice, but simply send out an invoice for the finance charge.”
I was a little put off by his telling me how to bill him 🙂 and it got me wondering how others do this.
As I said above, providing a new total invoice showing everything seems most logical (and easiest to track in my own books)
Kenton VanNatten
Avid Editor (for hire) -
I think you might be on slighty slippery ground there… you might want to consult some more professional advice.
Firstly, in most states you have to stipulate in your original contract that late payments will be subject to late charges. The verbage is something like “Vendor reserves the right to levy monthly finance charges on unpaid balances up to the maximum allowed by law.” If you don’t stip in advance that late charges are in the mix, the client is in no way obligated to pay any late fees, no matter how long they take to pay. They could take years to pay, but if you took them to court and won all you would be awarded is the original invoice amount.
Secondly, your amount of your late fee will come into question. I belive you said you charged an extra 10% after they were late after the initial 30 day period. A 10% late fee for 30 days is 120% a year. Some would call that loansharking… the legal term is “usury.” Note that the above stipultion said “…up to the maximum allowed by law.” That maximum is usually around 2% a month… or 24-25% a year. Title pawn places and those sleazeball advance-check-cashing outfits get around that due to some loopholes (which are thankfully closing in many places), but most of the time you can’t legally charge more than that.
I’d strongly suggest consulting with your CPA (or even your attorney) before adding those kind of late charges, especially if they have not been discussed before the job was contracted.
T2
__________________________________
Todd Terry
Creative Director
Fantastic Plastic Entertainment, Inc.
fantasticplastic.com
-
Regarding contracts: I am a freelance editor, not a full-service facility. So, there is generally no contract initiated before the job begins. Usually, I get an email/phone call stating that a client has more work for me and I either go to their facility or use my own equipment. I only use contracts for clients if it’s the first time working with them. Once a trusting relationship has been built, I don’t need a contract for future work. Plus, I bill all of my work weekly, so if there are any questions or issues we can address it right then and there instead of upon delivery or two months down the road or whatever.
This particular late client is one that I’ve worked for a number of times over the last few years and I do not believe that they are trying to stiff me. I know it’s just a cash flow issue.
On all of my invoices I do state that a 10% late fee may be assessed… etc. So, when they receive the first week’s invoice, they have an opportunity to raise the issue then.
The MA state Usury Law is set to 20% on Personal Loans (I wouldn’t call this a “personal loan” necessarily), additionally there is a “leg-breaker letter” exception under M.G.L. Chapter 271, Section 49(d), you can charge usurious interest as long as you send a letter to the Attorney General with the lender’s and borrower’s name and accurate address. This notification is good for two years.
Another way around Usury Laws is to offer a discount if the balance is paid by a particular date. Traditionally, I haven’t done this as I don’t believe in jacking up my invoices for that purpose, but if I’m to be faced with only gaining $15 on every $1000 for each month of lateness, I may have to start.
Thanks to everyone who has offered their opinion so far, it certainly good food for thought.
Kenton VanNatten
Avid Editor (for hire) -
[Kenton VanNatten] “Once a trusting relationship has been built, I don’t need a contract for future work.”
Yeah, unfortunately you do in today’s world. Even long term clients / colleagues can screw you over without a second thought.
I have contracts in place for all of my clients at all times.
Walter Biscardi, Jr.
Editor, Colorist, Director, Writer, Consultant, Author.
HD Post and Production
Biscardi Creative Media“Foul Water, Fiery Serpent” now in Post.
Creative Cow Forum Host:
Apple Final Cut Pro, Apple Motion, Apple Color, AJA Kona, Business & Marketing, Maxx Digital. -
[walter biscardi] “Yeah, unfortunately you do in today’s world. Even long term clients / colleagues can screw you over without a second thought.”
I would agree with Walter, yet again. ;o)
While in most cases you can count on the relationship built over time (with most people), there is indeed a small handful wherein the contract is the defining element that allows “good fences to maintain good neighbors.”
Ron Lindeboom
-
Keep in mind that a handshake deal is just as legally binding as a contract written in stone, as long as it meets the three legal requirements for a contract: 1) offer, 2) acceptance, and 3) consideration.
The only real difference is that a verbal contract is a lot more difficult to prove, if challenged.
So really, you probably are working under a contract, just not one on paper, as long as the client has offered you the gig, you’ve accepted it, and you both have agreed on the money. Again, it’s just a lot harder to prove. At that point (the point of hashing out the working agreement) you should mention that you will be adding late charges on outstanding balances for overdue invoices.
Mentioning it for the first time by noting it on a client’s first invoice is, at least legally, useless. They might be nice enough to pay it anyway, or legally naïve enough not to question it… but either way they are under no legal obligation to do so. If you spell it out in advance, then they are.
T2
__________________________________
Todd Terry
Creative Director
Fantastic Plastic Entertainment, Inc.
fantasticplastic.com
-
I would never adjust the original invoice – never. That opens a can of worms for them to dispute what is the correct amount regardless of the dates on them.
The proper way (not being an accountant) using Quickbooks or similar, would be to to send them a monthly statement with statement charges or create a separate invoice for finance charges and then create the statement showing the original invoice amount and the subsequent finance charge invoices. And you have to be specific as to when the FC starts – the date of the invoice, after the 30 past due, etc. And can charges accrue on the finance charges or just the original amount.
AND if a client has a preferred method of billing that will get me paid – no problem from me. When to submit them, how to submit them (email, mail, dropoff, whatever). I have one that reminds me every time 2% net 10 and the check is there. This is not to say I offer blanket discounts.
I’ll have to disagree with your security of holding the raw… they got the master and that’s all they need.
Now, not being a lawyer but playing one like most of us do on a daily basis, my clients don’t own any copyright till the bill is paid in full. So if they air stuff without paying that’s in violation and I suppose I would send a “cease and desist” letter after I recorded it on TV. But this is not an issue since material isn’t released without payment or is at least watermarked.
I third the statement with Walter and Ron on always needing a signature on a scope of work/agreement/contract. Mine is now 7 pages long.
Steve
Reply to this Discussion! Login or Sign Up