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Ray & Karen
10-23-2003, 09:19 AM
Do any of you charge a late fee for payments not received. I send a pre-addressed return envelope to all of my customers. Most pay immediately, but there are some who are almost a month late...every month. I don't want to drop these customers, because I have a tight/easy route. They eventually pay, but I get tired of financing things that come up such as their kids soccer camp. Now getting to my question, do any of you charge a $10 or 10% fee for checks not received by the 15th of the month.

BobR
10-23-2003, 09:51 AM
Ray N Karen

I myself do not charge a 'late fee' but I do not see any thing wrong with initiating that procedure. Just let your customers know (send all customers a letter) that you expect payment by the 15th or a 'service charge' of 10% will be added to the next months bill, you do not have to be nasty about this just explain that you have financial obligations to be met and that receiving payment for 'services rendered' by the 15th would be most appreciated. If you have a 'contract' with your customers you could add a paragraph outlining the '10% late fee'.
BobR

naturescape
10-23-2003, 09:58 AM
Anything beyond 2% a month is illegal. However, I think if you have them sign a contract stating a flat late fee, you may be alright. Anybody know about this? I wouldn't mind doing it in my contract next year, but it's not worth doing for 2%/month.

scott's turf
10-23-2003, 10:09 AM
Originally posted by naturescape
Anything beyond 2% a month is illegal. However, I think if you have them sign a contract stating a flat late fee, you may be alright. Anybody know about this? I wouldn't mind doing it in my contract next year, but it's not worth doing for 2%/month.

I've heard this on this site before. My mortgage has a 5% late fee. I used to have a $10 late fee but found it was unfair if someone paid on time but not completely. I have not had one complaint about the late fee or the implimentation of it.

naturescape
10-23-2003, 10:12 AM
I used to have a $10 late fee but found it was unfair if someone paid on time but not completely

Well, you can always state in your contract that it COULD apply, then just charge the customers the late fee that you think deserve it. Like customers that pay late EVERY month.....

Jimbo
10-23-2003, 10:31 AM
I sure would like to know where someone came up with 2% being the maximum. Your customers are getting an interest free loan of sorts and credit card companies charge up to 27% for that privelage.

Unless you have a link to a Government law regarding this you should not continue to post such non-sense without knowing the facts. If someone can find such a link I will forever eat my words.

I myself impose a flat $15.00 late fee on a particular customer and they never pay it. I then claim the unpaid late fee's as a loss on my tax returns.

naturescape
10-23-2003, 01:32 PM
www.bodmanlongley.com/PDFs/const-sp03.pdf+legal+advice+Michigan+late+fees+contractors&hl=en&ie=UTF-8 (http://216.239.37.104/search?q=cache:BKYgye0aV9YJ:Here's a link I found for late fee advice for Michigan contractors.

This is the main part of the page that concerns us:

Late Payment Charges: Obtaining interest on a
past due amount presents difficulties because of federal
and state law relating to usury, truth-in-lending,
consumer financing, and other laws. To obtain
compensation for inconvenience and additional
expense relating to collection of past due sums, include
a clause in your written contract providing for a late
charge or late payment fee in the event of nonpayment.
Failure to do so ELIMINATES your right to a late payment
charge. However, the charge MUST BE REASONABLE. A
charge of 1½ percent per month on the past due balance
may be reasonable depending upon the circumstances.

This text is under their copyright.

The caps on type are mine for emphasis.

Jimbo
10-23-2003, 02:09 PM
That makes sense. Obviously you should have your policy on late fee's spelled out in your contracts or in a legal battle you may not win.

"Reasonable charges" is very broad and I consider reasonable charges the oppourtunity cost of keeping my money elsewhere. This could obviously be alot more than 1 or 2%.

You might want to keep your money in a CD paying anywhere from 1-3% in todays rough economic times, or in a Treasury Bond for up to 6%. You might even stretch it and say you would rather invest your money in stocks where the historical average has been around 12%.

If anyone settles for less than 3% (currently) you are just being a bank for your customers.

Jimbo

FYI- My fee is 6%

newleaflandscape
10-23-2003, 03:56 PM
I am in michigan. I had a lawyer draw up my proposals-contracts. In the contract it says directly that if payment is not mailed within ten days after invoice is recieved that a fifteen percent late charge will apply. You may think that kind of sucks asking for payment within ten days of the bill, and so did I when he printed it up. But then he reassured me, that if they dont pay in ten business days, it will take about five days for late notice to get to them, and usually your late notice is just a warning. Then if they dont pay in another ten days, you send them a new bill saying what the total amount do is now. Overall if people dont end up paying, they have about twenty five days before the late charges apply. I have used that contract for about two years now. I can honestly say I have only had two problems with people paying; One went on vacation and never told me, so I waived the fee. And the other I had to take to small claims, and YES I did get my fifteen percent.

mowerman90
10-23-2003, 05:11 PM
I don't see why more of you use my system. EVERY customer is under contract. The contract states that if they don't pay by the 10th of the month there's a $10 late fee applied. Oh, by the way, all of my customers pay for the months service IN ADVANCE. Once burned, twice learned, as the saying goes. I got shafted for almost $2000 when I started this business back in 1989 and that's the reason I started making everyone pay in advance. It was the single most important business policy I've made. Like others have said, "don't be a bank for your customers".

Shuter
10-23-2003, 05:20 PM
I have not had much of a problem with payments. I do send with the bill a return envelop with postage on it. I think that for what it costs me for extra postage, the customers send payment a little quiker, so it is worth it.

Shuter
10-23-2003, 05:22 PM
Sorry, quicker

naturescape
10-23-2003, 06:47 PM
"Reasonable charges" is very broad and I consider reasonable charges the oppourtunity cost of keeping my money elsewhere. This could obviously be alot more than 1 or 2%. You might want to keep your money in a CD paying anywhere from 1-3% in todays rough economic times, or in a Treasury Bond for up to 6%. You might even stretch it and say you would rather invest your money in stocks where the historical average has been around 12%.

Jimbo,

Obviously you are confusing monthly interest for yearly interest. Note that 2% a MONTH is the same as 24% a YEAR. Even more since the 2% would be compounded monthly.

Expert Lawns
10-23-2003, 08:02 PM
If I don't receive payment (or their balance is outstanding) for more than 30 days, I send them a 2nd notice letter. In this letter I tell them they have 10 days to pay in full or there will be a $10 late fee assessed every week there after.

Ray & Karen
10-23-2003, 10:14 PM
Expert Lawns...Do you mean you continue to service your customers if they have an outstanding balance of more than 30 days. Most of my accounts are weekly accounts.

paponte
10-23-2003, 11:12 PM
Here is an exert from our contract...

"A finance charge of 2% per month on the unpaid amount of an invoice, or the maximum amount allowed by law, will be charged on past due accounts. Payments by Customer will thereafter be applied first to accrued interest and then to the principal unpaid balance. Any attorney fees, court costs, or other costs incurred in collection of delinquent accounts shall be paid by Customer. If payment of invoices is not current, the Company may suspend performing further work. Any returned checks will incur a $30.00 returned check fee, and will revert Customer to a cash only basis."

Jimbo
10-23-2003, 11:58 PM
Naturescape- Maybe my comparison was not the greatest, and I understand what your saying. However, its not going to take the customer a year to pay me, so I charge a 6% fee for payments made after 30 days. If you want to say that is an APR of 72% then so be it.

Jimbo

Team Gopher
10-24-2003, 04:03 AM
Hi Ray & Karen,

Here are a few posts that expand on this topic.

late fee letter or clause with contract (http://server2.lawnsite.com/showthread.php?s=&threadid=39070)

Landscape Install Contract Wording. (http://server2.lawnsite.com/showthread.php?s=&threadid=46734)

David Haggerty
10-24-2003, 08:34 AM
Originally posted by naturescape
Anything beyond 2% a month is illegal. However, I think if you have them sign a contract stating a flat late fee, you may be alright. Anybody know about this? I wouldn't mind doing it in my contract next year, but it's not worth doing for 2%/month.

Sure it's worthwhile. It's just a little formula in a cell in the Microsoft Excel program. It figures it automatically. If a balance stays in the Arrears line on the bill past the overdue date an amount pops up in the Late feeline.

I started it last July. I just wrote a line on the bottom of the bill.



Accounts not paid within 30 days of date due are charged a 2%late fee.


I was going to start charging the next month but everybody caught up on their bill.


A supervisor at one of the factories I mow explained to me that today accountants expect a "2% discount" for bills paid on time.
Really it's just the late fee added on already then removed from the bill when they pay on time.

No thanks. I'm sticking with "late fee".


Dave

gramps
10-24-2003, 12:01 PM
In the past we had some cronic late payers.A flat $15.00 late fee per month was added to all past due bills.(after 15th.) Never had to use it since

Expert Lawns
10-24-2003, 01:24 PM
Ray and Karen - It all depends on the customer. I only have 35 accounts, and pretty much know everyone personally. If I have to make the decision to cut off their services until payment is received,here are the deciding factors: 1) Do they have a good past payment recored with me 2) If I send them the "please pay to in order to avoid an interruption in service" letter, will it jeopardize losing them as a weekly customer 3) Most importantly, if i continue to mow them, am I confident that they WILL PAY.

I think about all of the above before making my decision. Pretty much, if I am confident that they will pay, I will continue to mow them.

Green in Idaho
11-04-2003, 12:38 PM
Originally posted by Jimbo
I myself impose a flat $15.00 late fee on a particular customer and they never pay it. I then claim the unpaid late fee's as a loss on my tax returns.

Per PM, Jimbo, it looks like the max% ? was answered.

As for the tax deduction:

A general rule of deductions is you can not deduct something that has not previously been included as income (taxed). With that in mind it would depend on if your tax accounting system is cash-basis (reported when cash is in hand) or accrual (reported when earned).


Under Cash Basis
You bill someone $100. They don't pay and you charge $15 for late fee. They skip town and you know you won't get paid. Since you have not reported the $115 as income the $15 late fee is not deductible- the $100 is not deductible as a bad debt either. IF you included the $115 as revenue (which would violate the principles of cash-basis) then it would be normal to deduct it. But the end result is the still the same. 115-115=$0.

Or they get the $115 and tell you to stick the $15 fee. You report the $100, but since the $15 is not previously reported as income it is not deductible.

IF you were to not report the income and then to take the deduction.... well, that's "incorrect".


Under Accrual-
You bill someone $100. Same $15 late fee. You report the income as taxable in December and then come February you realize you aint getting it (the money that is). So you write off the amount not received since you have previously reported it as income.
Accrual also has many other factors to consider such as developing a bad debt allowance, or using the nonaccrual-experience method for bad-debt.
__________
So since most small operators use cash basis reporting, it is not practical that an unpaid late fee "write-off" would hit the tax return. Accounting records (for management) yes, but not the tax return.

There is a reason why the return has the question "Cash or Accural?".


For more pleasure reading about bad debt see IRS Pub 535 page 45 at this URL: http://www.irs.gov/pub/irs-pdf/p535.pdf

Also notice the title of the publication- Business Expenses. This ought to be required winter reading for all small business owners. :D