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Invoice Template with a Late Fee

An invoice template with a late fee is sent to an individual or company that has an outstanding balance that is past due. Late fees can be structured as a single, standard amount per week or month (e.g “$10”), a percentage based off of the total invoice (e.g “1% per month”), or a combination of the two. Before a client is charged a late fee, it’s important that the issuing entity has clearly laid out the terms of the invoice in an obvious manner to assure the client understands the monetary penalty for leaving an invoice unpaid.

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Table of Contents

How to Charge Late Fees

As stated above, the first step to charging late fees is to ensure the client knows they will be charged if they are late on payment(s). On the first invoice sent, the terms should be clearly stated. Although using the term “Net” (as in “Net 30”) may be common knowledge to the issuer of the invoice, the client may not be familiar with the term. To get around this, use simple phrasing such as “Due in ___ days upon receipt. 1.5% interest every month after stated due date.”

When charging late fees, keep the following tips in mind:

  • Be polite – customers will be typically be unhappy to receive a late fee; don’t compound the problem by being rude. Saying word and phrases such as “Please,” “Thank you,” and “If you have any questions, don’t hesitate to reach out” may seems small, but their effects are immesureable.
  • Issue the late fee timely – saying a late fee will be charged “7 days after the due date” means that the charge should be applied immediately after the 7-day mark. Why is this? The company or contractor needs to establish the importance of making the payment. If the client sees the issuing company not holding true to their own standards, why should the client make their payment on time?

Assuming the first invoice has been sent (containing the terms) and the due date has passed without receiving full payment, the issuer can now send the invoice containing the late fee. The new invoice will include all previous charges that the first invoice contained, with the late fee included as well. In the description area the issuer should explain exactly how the late fee amount was calculated. If the late fee is charged as a percentage of the entire invoice, for example, it would look similar to: “$2,000 x 1.5% (.015) = $30“.

For each month that goes by without payment, a new invoice should be created and delivered to the client. The previous month’s added interest should be used in the calculation for the new fee as well. For example, the new invoice calculation would like: “$2,030 x 1.5% (.015) = $30.45“. This process should be repeated until the client has paid the invoice (and fees) in full.

Pros & Cons of Late Fees

Before attaching a late fee to past-due invoices, it’s wise to measure the benefits and drawbacks to doing so.

PROS

CONS

  • Potential for increased payment - Although their amounts may appear small on paper, late fees can certainly add up. Having said, they should be viewed as a type of "bonus" per se, and not as an actual means of expected revenue for a company or contractor.
  • Incentivizes on-time payment - The fear of losing money is an undeniable motivator. If the potential fee is obvious to the client, they will be inclined to make full payment within their allotted timeframe.
  • Can lead to unhappy customers - Late fees can make a customer feel as though the company doesn't appreciate their business and only cares about money. While being polite can help counteract this, there will always be unhappy customers.
  • Time-consuming to keep up with - Calculating how much a certain owes in late fees, following up with all clients, and dealing with the potential for disputes can all cause a significant amount of time and energy on behalf of the issuer. This time needs to be seriously weighed to determine if late fees are worth charging in the long-run.

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