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View Full Version : Late fees - Legalities


1MajorTom
03-16-2007, 08:30 PM
I hear a lot of people on hear talk about late fees and how they use them.
We never have in all the years implented a late fee as we have very few late payments. However, with all the new customers we have been signing up last year, and I foresee this year, I would like them to know from the beginning that there will be a late fee charged if they decide they are just going to send in their payments when they feel like it.
How do I go about doing this? I'm sure I just can't charge what I feel like?
Legally am I only allowed to tack on a certain percentage?
I've looked online for late fees in Pennsylvania, but couldn't find anything.

I just want to know what I'm legally allowed to charge.
Anyone?

TKO Landscaping
03-16-2007, 08:54 PM
I will just charge a $10 service fee, if I have to send more than one invoice.

CLARK LAWN
03-16-2007, 09:29 PM
dont know about PA but in Ohio all you can charge is 18% annual or 1.5% per month and it must be clearly maked on the invioce.

1MajorTom
03-16-2007, 09:47 PM
dont know about PA but in Ohio all you can charge is 18% annual or 1.5% per month and it must be clearly maked on the invioce.
that's great, that's the info i'm looking for, but how did you find that out for your state? I want to be able to verify this so I know exactly what I can charge for Pennsylvania.

HGT INC
03-16-2007, 09:50 PM
In Michigan I charge 1.5%, with a min. of a $5.00 intrest charge. If their a good customer and its a rare late payment, I wave it. Most will pay it, but the ones that complain, I either jack up the price the next year or drop them. I will get a few that will pay the last bill of the season late, thinking that they can get away with it. Same thing for them the next season. If they cant pay on time, what good are they to you?. Not sure of the legality protion, but been operating this way for over 25 years.

CLARK LAWN
03-18-2007, 12:41 AM
that's great, that's the info i'm looking for, but how did you find that out for your state? I want to be able to verify this so I know exactly what I can charge for Pennsylvania.

i found it from my aunt who a cpa i'll ask her what it would be underwhen i see her

1MajorTom
03-18-2007, 12:46 AM
Clark Lawn:
Thank you very much, i've been trying to search this, but I'm not coming up with anything solid.

HOOLIE
03-18-2007, 01:11 AM
I haven't found anything specific for Virginia either...I think as long as it's spelled out on the contract you are OK to an extent...I'm sure there must be some sort of upper limit??

I know my storage facility charges an $11 late fee if it's over 10 days late, then they charge an additional $25 if it's over 20. The office is busy on the 20th of each month...:laugh:

General Landscaping
03-18-2007, 02:48 AM
There may be an interest cap, but a late fee is'nt based on interest. I've had a $2 balance go unpaid on a credit card; and got hit with a $29 late fee.

topsites
03-18-2007, 04:30 AM
I haven't found anything specific for Virginia either...I think as long as it's spelled out on the contract you are OK to an extent...I'm sure there must be some sort of upper limit??

Here's Va's legalities:
You can charge as high of a late fee as you can justify in court, should the customer decide to take that route, there exist no upper limits but you have to be able to account for it so don't make up a number. Also before you tack it on, the customer has to be informed of the fee (and the amount) some kind of way, I usually give at least 2 weeks notice on this.

Other notes:
In just over 5 years I have yet to collect one full late fee but I do send the balance through collections nowadays.

lawnguyland
03-18-2007, 08:46 AM
If a credit card co can charge $39 we can too!
I have a $20 late fee that I enforce as needed, usually only if they are chronic late payers. I state the late fee in the contract and on every invoice so it's no surprise.

supercuts
03-18-2007, 09:25 AM
i have a $25 late fee, more to scare people into paying within 30 day period. i usually let first time offenders and high end customsers slide a bit. watch out, i believe if you call it a "late fee" or "processing fee" your in the clear, i was told interest is another story and you can into trouble if you dont have the numbers right, call you state atterny general

Precision
03-19-2007, 11:36 PM
http://www.lectlaw.com/files/ban02.htm

http://www.wolfbaldwin.com/lawyers_attorneys/Articles.asp?ArticleID=32&Page=legal_interest_usury_PA_interest_rates_Pennsylvania.asp

Jodi, it really looks like PA has no idea what they are doing with usury laws

from what I read, 6% is the interest rate of default when not otherwise stated.
36% is the defined criminal interest rate. If you charge that or higher, you are a felon upon conviction.

It seems to state that installment service business (lawncare) can charge 12% but I might be wishfully reading that.

I think it really depends on what the courts decide but 6% (simple annual) interest is definately legal. Less than 36% might be legal.

What I do in here (Florida) is charge 5% for regular maintenance when first late, then 1% monthly after that (compounded)
On one time items, I charge 5% the day after completion (due upon completion), 5% more after 30 days and .5% every month after. Our cap rate is 18% compounded.
I have never had any go past the 30 days and having a lien placed on the one time events. And I have a 40% deposit and a contract, so I can prove they agreed to the work.

Hope that helps.

NorthwestLawnCare
03-19-2007, 11:43 PM
We charge a $10 late fee if we have to send a second notice. Second notices are sent 2 weeks after the due date. If a customer routinely pays more than 2 weeks late, I eventually ask them to leave a check on their door for the entire balance owed to date. Then I drop 'em.

lawn masters2006
03-19-2007, 11:56 PM
i charge 15 % on the bill owed...take it or leave it..i get my money ! payment due in 15 days of the bill date...or pay up...they all usually pay on time:usflag:

1MajorTom
03-20-2007, 12:34 AM
http://www.lectlaw.com/files/ban02.htm

http://www.wolfbaldwin.com/lawyers_attorneys/Articles.asp?ArticleID=32&Page=legal_interest_usury_PA_interest_rates_Pennsylvania.asp

Jodi, it really looks like PA has no idea what they are doing with usury laws

from what I read, 6% is the interest rate of default when not otherwise stated.
36% is the defined criminal interest rate. If you charge that or higher, you are a felon upon conviction.

It seems to state that installment service business (lawncare) can charge 12% but I might be wishfully reading that.

I think it really depends on what the courts decide but 6% (simple annual) interest is definately legal. Less than 36% might be legal.

What I do in here (Florida) is charge 5% for regular maintenance when first late, then 1% monthly after that (compounded)
On one time items, I charge 5% the day after completion (due upon completion), 5% more after 30 days and .5% every month after. Our cap rate is 18% compounded.
I have never had any go past the 30 days and having a lien placed on the one time events. And I have a 40% deposit and a contract, so I can prove they agreed to the work.

Hope that helps.

THANK YOU very much, that was very helpful. I really appreciate you finding that for me. Yes, it does seem complicated, seems pennslyvania can never keep things simple. Even the sales tax here is a joke. We collect sales tax on some services, but not on all of them.
6% seems safe. thanks

Envy Lawn Service
03-20-2007, 01:41 AM
THANK YOU very much, that was very helpful. I really appreciate you finding that for me. Yes, it does seem complicated, seems pennslyvania can never keep things simple. Even the sales tax here is a joke. We collect sales tax on some services, but not on all of them.
6% seems safe. thanks

It's really best to contact your attorney to get the real straight of it.

Most states have all sorts of various things on the books, and what you can or can't get by with usually depends on what they have ruled on in regards to the "nature" of the business in question.

Like for instance, your phone, cable, power, bank, credit card... etc.

It's highly unlikely that they all play by the same set of rules.

Likewise, it is highly unlikely for you to share rules with any of those.

Precision
03-20-2007, 02:42 PM
THANK YOU very much, that was very helpful. I really appreciate you finding that for me. Yes, it does seem complicated, seems pennslyvania can never keep things simple. Even the sales tax here is a joke. We collect sales tax on some services, but not on all of them.
6% seems safe. thanks


Envy is probably right. Contact a lawyer, especially if you already employ one on occasion or have a buddy who is in the business.

Or you could run the question by your accountant. He will probably know or could call a lawyer buddy.

6% is way too low unless you go with 5% as your first hit then suck it up for the rest of the year. But I think the reference to installment pay services should apply to Lawncare and 12% is worth it. 5% and .5% monthly after that, at least the bill is growing each month they don't pay.

Snyderserv5060
04-06-2007, 11:24 AM
I know I am digging up this post but I wanted to add in some things. I wrote out my formal contract the other day and had my lawyer look it over. I specifically wanted to him to "ok" the section on late fees and lawyer fees (should they arise for nonpayers).

I had my late fees set to 15% after the set time frame for the job (grass and landscaping differ some) and then 15% each following month I have to wait.
He informed me that in the state of Maryland I can only charge up to 24% ANNUALLY which means 2% per month. At 2% a month what push is that going to give someone to make sure they pay on time? Now I can charge whatever I feel but should I need to go to court according to my lawyer the court/judge may look at the contract as unreasonable and side partially on the non-payer :confused:

As talked about before and what I was thinking is all the services out there like CC's that will charge you $20-40 even for 1 day late. How is this done or written out that its ok to do. I think a solid $15-20 or so fee would be sufficient in making people get their checks out on time.

I too have many who this wont be needed for but as typical I also have the lazy ones who just "forget" or "are soooooo busy." As we all know we cant run our businesses this way and I know in MD the only legal way for me to impose late fees is by a signed formal contract.

Thanks

Precision
04-06-2007, 04:29 PM
As talked about before and what I was thinking is all the services out there like CC's that will charge you $20-40 even for 1 day late. How is this done or written out that its ok to do. I think a solid $15-20 or so fee would be sufficient in making people get their checks out on time.


Thanks

In my opinion, you should go with 5% when it passes the grace period, then add
1.5% per month after that. Realizing that it most likely needs to be simple annual interest not monthly compounding.

example simple interest.

$100 due
$5 late fee one grace period expires
$1.50 additional late fee each month

on month 13 (hoping it never gets that far) the new basis is $123
so late fee for that month (and each of the next 11 months) is $1.85

here you maintain a 1% margin below the max and don't overdue it by compounding (check compound interest may be allowed, but usually isn't). Also the 5% for the first month is a decent amount.

Or go 10% first month and 1% every one there after or whatever works. But the big hit should be month one.

And CC companies (by law) have completely separate laws that only they can use. Scum bags. So just forget about what they can do. You CAN'T and if you try and someone takes you to court, the judge is most likely going to dismiss the entire amount, not just your "abusive" late fees. Much better to have easier late fees and at least get paid the principal then to have the entire debt forgiven by some liberal bleeding heart judge.

Because you know it will be the $20,000 landscaping job that goes to court and not the $200 monthly premium.

Drew Gemma
04-06-2007, 04:33 PM
actually in ohio it can be a max of 2% a month no greater than 24% a year unless you fill out a financial disclosure form then you may charge more. Also it muyst be on each statement to each customer to have legal implications.

Ours is 2% after is becomes late.

topsites
04-06-2007, 09:43 PM
Forget that, I'm not loaning money here, this is a service rendered based on payment due upon completion and not some kind of loan based interest thing because for all of 5 or 10 dollars, that's just another insult when considering all the extra time and work that goes into chasing after deadbeats.

My late fee is $45, press charges all they want, I got receipts just from the collection agency will cover a good portion of it, the rest is the time spent in chasing after these folks, not that it's many of them but I'm not playing here, and a good part never pay anyhow, so really 45 isn't enough, but it sure gets some checks in the mail to me in a rush.

All I do is after about 50 days, a bill gets sent out that informs the few that payment is required within 15 days or there will be a $45 late fee followed by further collection issues. Sure, if the fee is only 10 or 15 more might pay, but I get that much out of the few anyhow, those who decide they'll pay what they think is a fair late fee, and the balance goes off to collections, nice as can be.

10 dollar late fee, that ain't even worth going out on a limb in that sense.
I'm not trying to make money off the late fee (thou that thought has crossed my mind many times), I just want to get paid for having to chase after someone time after time, same thing as getting paid for maintenance and windshield time, you can not do this all for free, doesn't have to earn you top dollar, but...

btw, Central Pennsylvania College charges a $30 late fee for any tuition payments made after the due date, it ain't a loan.

topsites
04-06-2007, 10:20 PM
There is one thing I wanted to mention, and this is the crux of the whole matter, and why the entire 'he said - she said' concerns involving collections arise.

Assume:
Business A is honest, and upfront, runs legal AND ethical business.
Customer A is also upfront and honest, pays on time when ethically AND legally obliged, sometimes even when it's wrong.

Business B is a little different, they do abide by the law, but hesitates not sometimes to conduct a transaction that happens to be legal but is ethically wrong.
Customer B is about that same way, basically chooses whom to pay, and when.

For clarification, I safely assume 1MT is Business A.

So long Business A deals only with Customer A, there is almost never a problem, and likely the one time in 5-10 years a wild one arises, it can be written off as just so much bs, and see you later and have a nice day. You know as well as I do, we hate to write it off but the one disagreement every 2-5 years over 50 or 100 dollars isn't usually worth this $700 / year relationship, unless it becomes a habit, we use our best discretion in the matter.

But what happens otherwise, whom does Congress assign the ultimate power of collection to?
Who, business or customer, has the final word on who has to pay what, and when?
Assign this right to the customer, and Customer B will love to call Business A, taking full advantage of the law.
Assign this to the business, and the unscrupulous business starts taking advantage of customer A, it still isn't right.

That is why this area of the law concerning late fees and collections is a grey area. You have to decide if you are willing to stand in front of a judge, while sworn under oath, can you justify the debt, does the customer rightfully owe you the money? If you're in doubt, then you might have to let the late fee slide, and perhaps the original amount due, what can I say...

But if you did the job according to your original agreement, and the money was to be paid and it simply wasn't, I believe you can charge an appropriate late fee, so long you can justify the amount, you can't just make this an arbitrary 5,000 dollars, but I do believe it has to compensate you somewhat for your trouble, say at roughly a clerk's wage, or at minimum wage of 4-6 hours spent chasing plus cost of fuel and stamps and envelopes and the stationery, well, you have to figure it out, and again it's a discretionary amount but once you come up with it, stick with the same figure.

Frontier-Lawn
04-07-2007, 06:11 PM
heres what i charge:
Late Fee for not paying old invoice before the due date.
1st Time Late $15.00
2nd Time Late $25.00
3rd & Later Times Late $35 + 4% Intrest on Balance Due

and after the 2nd time there never late anymore