Late payment penalties

Payment of delay penalties in case of overdue invoices is now mandatory in many countries around the world. It is the case in United States with "Condition 4 of Table A, Schedule 7 of the Transfer of Land Act " and in Europe with the NRE law issued in 2001.

Late payment penalties are payable by the buyer when invoice is not paid while its due date is passed. That means that any late payment versus the due date will usually give rise to an obligation to pay delay penalties.

The supplier is theoretically not supposed to claim them because they should be paid automatically by the buyer who did not respect its commitment to pay on the due date.

In reality, the purchaser pays rarely the penalty by himself and it is often difficult to obtain them even in cases of long delays in payment.

Get into the culture of late payment penalties

Not all companies have included late payment penalties in their trade rules?
In many cases, it is due to a lack in many commercial culture of the concept of late payment penalties. This lack inhibits the supplier in its claims (fear of harming the business relationship) and does not incite the buyer to comply with the Law on this subject.

However, it has been demonstrated by experience that companies that clearly require the payment of penalties for late payment manage to get them and increase the credibility of their collection strategy with their clients.

Moreover it does not harm in any way the commercial relationship. How a buyer could legitimately criticize you to apply the Law and to require the payment of your bills on their due dates?

Late payment penalties in My DSO Manager

The late payment penalties are automatically included into My DSO Manager if they are activated in the customer account.

The amount of late penalty is inserted dynamically in recovery documents (e-mails, letters, interactive e-mails) with our #Hashtags. It is calculated based on the rates set in the account settings. See more with the online demo.

Late payment penalties advantages

You educate your client to pay you the due date of your invoices,
You compensate the financial cost of a late payment,
You improve the outcome of your business,
You comply with the law and credit management best practices.

Adopt the culture of penalties for late payment! You will be better paid by your customers but you will also get a financial compensation in case of delays of payment.

Questions related to late payment penalties

What rate of late payment penalties to use? It depends on the country inflation and interest rates.
In United States, The rate is set under the Penalty Interest Rates Act, and is subject to variation.
In France, the law says that the late payment penalties rate must be equal to the European Central Bank's refinancing interest rate applied plus 10 percentage points and in no case be less than 3 times the rate of legal interest.

We recommend to choose a rate between 8% / year and 15% / year .

How late payment penalties are calculated? Late payement penalties are calculated on the balance of the receivables due including taxes.

Where do they appear? The late payment penalties must be disclosed in your sales conditions, your business contracts and on your invoices (in the form of a simple standard wording: "the rate of late payment penalties is equal to 12% / year).
Even if they are not specified they must be applied according to European law. .

Should they be billed? It is not necessary to invoice them. However you can do it if you want this amount debits your client's account. In this case, the invoice does not include VAT and is payable immediately.

Download here below the tools to calculate late payment penalties and to get them paid or use the online calculation tool.

Next: unpaid invoices collection

Online tools:

Late payment penalties calculation

Tools download:

Late payment penalties calculation

Late payment penalties Kit

Reminder letter delay penalties type

Articles on the same topic

Set up the payment term
Set up the most appropriate payment term and payment mean to reduce customer default risk and avoid outstanding receivable

Late delivery penalties
How to charge a supplier with late delivery penalties? In which cases is it possible? How to calculate these penalties?

Down payment and payment in advance
Payment in advance and down payment. How to request them efficiently to customers

The order for payment
Process of the order for payment and the European Order for Payment

Delegation of payment
Delegation of payment is well used in France to decrease credit risk. Process and contract templates

Negociate a payment plan
How to negotiate a payment plan. Contract templates to formalize the agreement made with the customer

Discount and prepayment
What are the advantages to offer discount for prepayments to customers. How to set up the discount rate based on cost of funding of your company and on the commercial context?

tools to download

Late payment penalties calculation