Calculating late fees on invoices can be straightforward, but applying the calculation consistently and building a policy around it can be challenging. Most companies have late fee terms in their contracts, but how to calculate late fees on invoices rarely gets the operational attention it deserves.

Understanding Late Fees

An invoice late fee is a charge added to an overdue invoice when a customer fails to pay by the agreed-upon due date. It is typically disclosed in a written agreement before any work begins and kept proportionate to the delay, though practices and requirements can vary by jurisdiction and contract type.

Before charging a late fee, a due date that the customer agreed to is necessary. The due date determines when the clock starts, and if it’s ambiguous, the fee can be harder to enforce. A clearly stated due date on every contract and invoice removes the most common source of that ambiguity before it becomes a dispute.

Common Payment Term Structures

Common payment term structures translate into a specific calendar date from the invoice issue date. For example, “Due upon receipt” means payment is expected immediately on delivery of the invoice. Net 7, Net 14, and Net 30 mean the full amount is due seven, 14, or 30 days from the invoice date, respectively.

Once the fee terms are in place, the next choice is the structure. Three structures are common in B2B invoicing: flat fees, percentage fees, and annual percentage rate (APR)-style interest. Each fits a different invoice profile and payment pattern.

Original reporting: KTVZ (Central Oregon) — read the source article.