Late fees for overdue payments

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krisp23

New member
I am curious to hear people's views on assessing late fees for overdue payments.

Here is my reason for asking this question. I did a job for a local movie theater. The money was good and the location is less than a 1/2 mile from my house. This is a client who I would love to continue servicing for obvious reasons. Now here's the bad part. I did this job in July 2002 and still have not been paid. The local manager agreed to my terms (Payment due in 30 days or else a $50 late fee + 1.5% per 30 days would be assessed) at the job completion. This is a large corporate theater chain, so all payments come from the corporate office and not the location itself. There was a period when I left one message a day for 3 weeks straight with the accounts payable department and never received a return call. I finally got through to a regional manager who said he would process the invoice, but he needed me to fax it to him. At this point, I would have been happy with just getting paid the original amount, but I was irritated and slapped the overdue fees on the invoice I faxed. I didn't want to create any bad blood, but I wanted them to know that I was serious. Was this a bad move?
 
Three months is great, 4 months is late, 6 months, I would be crawling up there a-- by now with a law suit...

take charge and get your money, that has to be big bucks with your charge...

Was there any problems with the job?

Matt
 
Do you have a written agreement regarding your finance charge?
Did someone with any authority (over 18 years of age) sign your invoice? Most bigger companies and all large corporations know about finance charges and understand that you are not a bank, and expect to be paid for allowing them to borrow your money which is what they are doing. Don't feel guilty, you are in business to provide a service, not loaning money.
As for getting paid in 30/60/90 most corporations are slow pay, speak to the local contact (Manager) and have him request the payment before you do, so you dont make him (her) look bad.
 
I deal with this type of thing all of the time. One of my big trucking accounts is an affiliate of RUAN one of the biggest trans. companies in the US. So as many times th invoice changes hands I just always assume there will be foul ups. So I just found out who it was in the accounts payable department that processes my invoices and we speak regularly. When they are hearing from me weekly they tend to stop forgetting about me. I used to get very upset that I wasn't getting paid and also wanted to charge extra on past due invoices but was patient got to know the secretary ask how her day is and have my wife write chrismas cards. Now I never have to get rude and I get paid. I do occasionally have to refax invoices to corporate if they claim they have not been recieved but I fax them directly to the hands that process them and it works. It does suck having to make collection calls but I have accepted that as part of being in business.

If you do enough in business it might be worth gatting a collection agency to handle them after 60 days if you're tired of doing it. Quickbooks does have a few collection letter templates you can use that are pretty good if you don't have the budget for a collection agency. Just make sure if you do use a collection agency charge enough in late charges to cover the firms fees.
just my 2 cents. Austin
 
There are a lot of slow payers out there when you deal with commercial companies,i have tried to assess finance charges in the past and the companies ignore them,i have found that by faxing a company letterhead over to accounts payable stating the temporary suspension of there service until overdue payments are caught up,usually gets my money in a couple days.

when i dont get paid for a job,or get strung out for payment it is never at a good time,but you can charge off to bad credit, which offsets your tax debt. so your never really losing anything.
 
If you had a $1000.00 invoice that wasn't paid, you're out the $1000.00. Yes, you can write it off to bad debt which will offset your taxable income, but you're only saving the taxes you would have paid on that $1000.00. It doesn't wipe out $1000.00 in tax debt. It is better than nothing, but you certainly ARE losing something. You're losing the balance of the $1000.00 after taxes.
 
my accountant tells me she writes off every dime i cant collect,off the top. she could be wrong but thats why i pay her.
 
You may want to clarify that with her, to be sure you're understanding what she's saying. I'm certainly not a tax professional, but neither am I going to believe that the IRS is going to allow us to take uncollected income out of our tax debt. You could feasibly wipe out your entire tax debt and then some if you had enough uncollectable income.

Uncollected income is simply income that never was. You show it as a receivable, and thus, as income on your books. Once it becomes incollectable, you write it off, or enter an ofsetting entry in your books, moving it from income to expense. That doesn't take it off the tax debt, it takes it off the figure that the tax debt is calculated from. If I made $50,000 taxable dollars last year (after deductions for operating costs, etc), but $5,000 of it was writte off to bad debt, my tax is figured on $45,000.00. I have no idea what the tax rate is off the top of my head for $50,000., but let's say it is 23%. That means that instead of paying $11,500.00 in taxes on the $50,000.00, I would be paying $10,350.00 in taxes on the $45,000.00. I did the calculations in my head so forgive me if my figures are wrong. The concept is right. (And don't EVEN get me started on our current tax system!)

Like I said, I'm not a tax professional, nor a CPA, but I have had some fairly extensive experience in the accounting field, including working with those who are tax professionals and CPAs.
 
Just a thought Krisp, are you sure the manager forwarded the invoice to begin with?

I deal with this all the time, each location gets the bill in the mail, they are suppose to sign off and forward to corp. accounts/vendor pay department.

Some sit on them to make their bottom line look better, some misplace them (lazy or poor talent on handling books) and others promptly send them on their way.

Most don't mail but do one of two things, fax, insert into computer as ok to pay vendor with all info and off it goes.

I am on 3 major corps. as Corp Vendor, speeds things up MOST TIMES but not always.

What Austin says makes sense IF you can get the persons name, some corps. don't/won't give that information out.

As for charging late fee's again it was mentioned did you get that in writing?

Hmm, factor them out, I pay .20 on the dollar, profit to me is .80.
 
I don't have to pay in a dime on invoices that haven't been paid but I can still write off the expense of doing the job. My books are kept on a cash basis and Tims accountant is probably handling his books this way also. However some people choose to keep their books on an Accrual basis where income is based on whats on paper wether or not you have received payment. Some say the accrual basis is an easier method of book keeping but if you start out using one or the other you must first have authorization from the IRS before changing methods or you could be penalized.
 
austin:

You are completely correct. You don't pay in a dime in taxes on money you can't collect. It doesn't matter whether it is a cash or accrual basis. What I was disagreeing with was Tim's statement earlier that you write those uncollected debts off and therefore you haven't lost anything. That would mean that for every $1000.00 you can't collect, you're allowed to take $1000.00 of the amount of tax you would pay. What I've been trying to explain is that yes, you ARE losing something. You are losing the money you didn't collect, minus the taxes you would have paid had you collected. For every $1000.00 in uncollected money, you are allowed to take that $1000.00 off your taxable income, not the tax you pay.

As far as cash basis or accrual, the accrual method is more accurate, the cash basis is easier. I'm sure there are more benefits and drawbacks to both, but I've never worked on a cash basis other than my own personal finances, and have never studied the pros or cons of either. The one problem I can see with a cash basis is that if you have a large amount of uncollected revenue at the end of the year, and collect it all in the following year, as well as collect most or all of the revenue you generated in that following year, you could wind up getting hit harder in taxes than you normally would have. That would happen if the higher income due to prior year revenue put you into a higher tax bracket.
 
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I just spent 15 minutes on the phone with my accountant regarding this issue,she assured me that every dime that is deemd uncollectible is 100% written off the top of gross sales,all that is needed to use this protocol is records of proposals,invoices,and collection notices pertaining to the sale that was deemed uncollectible.
maybe your tax laws are different,this is why i am in business to take advantages of benefits offered to those who are self employeed.
 
Tim:

Look, I don't mean to beat a dead horse here, but you're saying two totally different things and acting as if they are the same. Despite my best efforts to explain what I'm saying clearly, you're still not getting what I'm saying.

Yes, you CAN take all uncollected sales off the top of your gross sales. I have not disputed that, and have in fact explained that more than once. What you CAN'T do is take all uncollected sales off the top of your tax debt. There is a difference between sales and tax debt, just as there is a difference between gross income and tax debt for an individual. Gross sales is the amount of billable work you have done. Tax debt is the amount of money you owe the IRS or the state on that taxable portion of those gross sales.

What you initially said is that since you can write off uncollected sales to bad debt, you haven't lost anything. Do you see the error here? In order for you not to have lost anything, you would have to be able to lower your tax debt in the exact same amount as your uncollected sales. The problem is, you can't do that. You can only take that uncollected sales amount from the top of your gross sales, from which your tax debt is figured. Please go back and re-read, carefully, the past couple or three posts I have made and see if it makes sense.

The reason I'm pushing this is that it is wrong and may very well mis-lead some not to pursue collection efferts at all, since, as you mistakenly said, you haven't really lost anything at all. I don't mean to come across as a know it all or anything like that, but in this case I know I'm right and I feel that others reading this who may not know better, now and in the future, need to know that they ARE losing the income portion of those uncollected sales. In other words, if you are in the 23% tax bracket, for every $1000.00 in uncollected sales, you are losing $770.00. That's a lot of damn money to just write off. Why do you think so many companies spend so much on collection efforts if they could just write it off as a wash and not lose anything?

Sorry if I've come across wrong on this. Not trying to prove anyone wrong, just trying to make sure those who don't know better get the right information.

Mike
 
Mike you are absolutely right and are quite clear on it.
Tim, can I sub contract some work to you since you don't mind not getting paid?
 
Mike,

You are right, and have said it well..........although it can be a quite confusing topic at times.
 
Anytime you perform services for someone and do not collect you are out, time money and materials. Even if it is a small job and you only have say $50.00 in chemicals and fuel and you don't get paid you are out $50.0 plus labor now matter how you look at it, you are still in the red on that job.
 
i guess thats why i am not an acountant,the way i look at it i am paying 4 grand a year in taxes after all is said and done no matter what every year.
if i lose 800 on a job,it offsets my liability even further.
maybe i am not looking at this correctly but it keeps me from incurring another assault with a deadly wepon charge.
anyways last year was the first year i incurred any substantial losses.
 
Tim:

There are certainly more legal collection measures you can undertake than going after someone with a weapon. Yes, being able to offset your taxable revenue is better than nothing, it certainly isn't a wash, not even close. If it were me, I wouldn't worry about a small amount of uncollectable income, but if it were substantial, I'd certainly look into hiring a collection agency. Many collection agencies only charge if they collect, so you're not out anything except their fees on money they collect for you. What's there to lose?

Just my 2 cents worth.

Mike
 
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