If the customer does not pay in month three, the interest is applied to the new balance:Īt the end of month three, the customer now owes: $200 x 0.0083 = $1.66 This is the interest fee for month one.Īt the end of month two, the customer now owes: Now, you would apply the 0.83 percent to the $200 balance. The first month comes and goes with no payment. For example, let’s say you invoice a client $200 with net 30 terms. If the customer still hasn’t paid by month three, the monthly rate is applied to the new balance. This means that if the interest is charged in month two, it is added to the balance due. Interest fees usually compound to serve as a more substantial disincentive for late payments. So a 10 percent annual interest rate would be 0.83 percent each month. But since it accrues monthly, the amount charged is that annual rate divided by 12. The interest rate is usually displayed as an annual rate, for example, 10 percent. The interest rate is a percentage of the unpaid balance that accumulates every month that the invoice remains unpaid. What are interest fees?Īn interest fee is additional money the client owes you over and above the original invoice amount if they pay late.
Guide to reporting late and unpaid invoices free#
It also incentivizes clients to pay on time to avoid paying more down the line for their procrastination.Įditor’s note: Need a collection service for your business? Fill out the below questionnaire to have our vendor partners contact you with free information. This helps fill some cash flow gaps and pays for extra collection efforts. The answer is to make paying late painful for the client by charging late fees or interest on unpaid balances. How can you effectively collect past-due invoices and prevent late payments in the future? You may have sent second notices, statements or demand letters, but nothing is working.
It’s an unpleasant situation, with implications for your cash flow and customer service. You held up your end of the deal – rendering services or delivering goods – but now your client is ignoring the invoice.
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