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  #1  
Old 02-05-2004, 07:08 AM
GarPA GarPA is offline
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Join Date: Feb 2002
Location: PA
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late fees/apr or flat?

I need to refine my late fee procedures. Did a search here and there were varying opinions on using a flat fee versus a % fee.
Currently we use a $15 "re-billing fee"if the balance is not paid by the due date. (we issue invoices at the beginning of the month and they are due by the 5 th of the following month ...all maintenance customers are on contract). Most pay by the end of the month in which the service was performed. A few commercial accounts are ALWAYS 30 days beyond 5th due date. I dont pretend that any company is going to change their accounting process but I also dont need to be financing them either

Any advice/opinions are welcome...particularly if you tightened the screws in 2003 . If you did, how were the results?
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  #2  
Old 02-05-2004, 11:48 AM
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cush cush is offline
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I like a flat fee simply because it is easy to keep track of and easy for customers to understand.
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  #3  
Old 02-05-2004, 11:21 PM
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DFW Area Landscaper DFW Area Landscaper is offline
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Garpa,

I think I've figured out a pretty good solution to my A/R issues for all new customers in '04. May need to make adjustments as I go, but this is what I've figured out so far.

I made a ton of mistakes in '03, my first year. I billed once a month and gave my customers 30 days to pay. Anyway, my customers in '03 basically paid me whenever it was convenient for them. It would always start out the same. They'd pay the first few statements on time and then they'd test me. They'd pay late. I'd send them another statement with my 2% late fee, which usually amounted to an average of $3.00 or so. The next month, they'd pay a little later. The next month, a little later yet. I've still got three or four accounts that haven't paid their November statements. Remember, all uncollectibles start off as late pays. Late payment is very serious.

First thing is, my late fees were way too low. They just weren't providing enough of a catalyst to get people to pay on time.

Secondly, allowing 30 days to pay was way too long.

I've decided to change my due date to 23 days from the billing date for all new customers. That way if they pay a day or two late, I haven't already sent them a statement with a late fee. As long as I get paid by the time I do my next monthly billing, I don't care.

I've also changed my late fee to $29.00 on all new customers. But with a late fee that high, I'll have to waive it a lot in order to keep the customer. Fine. That's why I'll also be charging a finance fee of 2% on all past due balances. I'll waive the late fee but not the finance charge. The late fee is intended to be a tool. The finance charge is inteded to be a source of revenue.

Let me explain what I mean by tool:

Wouldn't it be nice if all our customers who can't pay on time would pick up the phone and let us know that they intend to pay on time, but just this once, they'll be a little late? But they never do that. They leave us hanging with zero communication. We don't know if we should suspend service and risk losing the customer or if perhaps they just overlooked it. We don't know what the heck is going on. We are forced to make a decision with regards to suspending service. If we suspend, we could lose the account if it was just an oversight on their part. But if we don't suspend, we're sending the customer a clear message that says they can pay us whenever it's convenient because we don't have disposable customers. Oh, but if they'd just call us and let us know what's going on, generally speaking, we'd be fine with that.

Now, if you get a bill from a vendor with a ridiculous late fee (ie 29 bucks), what's the first thing you're going to do? I think most people pick up the phone and demand or request that the late fee be reversed or else. They want to show that they have the power to take their business elsewhere. But a reasonable customer will also know that they can't insist on a late fee waiver if they don't promise to pay.

Viola! Problem solved. And if you don't get that call from the customer shortly after mailing out statements, you'll know you've got a problem that requires service suspension.

Later,
DFW Area Landscaper
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  #4  
Old 02-06-2004, 07:50 PM
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Team Gopher Team Gopher is offline
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Hi GarPA,

Most of our clients use a % based late fee.
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  #5  
Old 02-06-2004, 09:12 PM
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cklands cklands is offline
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1.5% or $5 whichever is greater
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  #6  
Old 02-08-2004, 12:08 PM
glenjr10 glenjr10 is offline
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GarPa,

I use a simple $5 late fee as my option. I also, keep very close track of my A/R, granted I only have 18 customers. I have about 10 that I do not have to worry about their payment, because I know it is in the mail. The other 8 are a pay at will, or a very forgetful bunch. I send out my invoices on the first of the month, and they are due by the 15th of that month. If it is late, then I charge a $5 late fee, and resend them that invoice. I will give the mail about 5 days, and then start my collection calling. I will call them, and this is how most converstations go.

ME: Mr. Jane Doe, I have not recieved the payment for Janurary, and I was just wondering if you had forgotten to send in your payment.

Them: Sorry, about that, (Some Excuse), I will be sending you your payment in the mail.

Me: Have you sent it in yet, or are you going to today?

Them: I will write the check right now.

Me: Thank you for your time. I really appreciate your business.

I like the idea of a large late fee, and using it as a tool, but I would rather use a smaller late fee, and be able to collect the late fee, (instead of waiving it). Personally I do not mind paying a $5 late fee, if I am truly late, but a $29 late fee, I don't know if I would be able to continue to use the vendor if they charged me $29 for a late fee.
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  #7  
Old 02-08-2004, 04:05 PM
grassguy_ grassguy_ is offline
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Join Date: Jan 2001
Location: Ohio
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late fees are fine and should be charged to those especially that like to stretch their payment due dates to an extreme. We have a net15 days, after which we will mail an AR letter at 30 days with a 2% late charge, and suspend further service unless payment is made. Charging $29 for a late payment fee might be a little extreme unless you're willing to lose customers becuase they drag their feet from time to time.
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  #8  
Old 02-08-2004, 06:15 PM
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JB1LNDSCPR JB1LNDSCPR is offline
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Location: Central NY
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I personally don't hate anything more than not getting paid on time because it screws up my bills. First off i give the customer 20 days from statement date unless they live out of state and then i give them an extra 5 days. When i do business with someone for the first time they are informed if there payment is 1 day or more late they are charged $25.00 late fee. I make sure they understand that before i am done talking to them. i don' put up with peoples ****. If payment is not recieved with-in 30 days i stop all work. It especially works best for plowing in the winter because then they are screwed. i never wave the late fee to anybody. all my work is done when they want it done so why should i have to wait for them to pay.
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