Finance Charges on a Bill

lonelyfarmgirl · #1 01/03/12, 11:45 AM

Unfortunately, we are at a point where some of our customers are not paying their bills. I am making a monthly invoice form with finance charges for unpaid invoices. I've never had to do this before.
I've looked at some bills from some other companies to get an idea of how it is done. Companies that charge a late fee charge go 1.5 or 2% per month. One of the 1.5% per month bills says something to the effect of 18% per annum, accumulated monthly at 1.5% per month.

SO, here is my question. Do you charge interest on the accumulated interest for someone who is not paying? I know if you have monthly interest on an unpaid credit card balance, they do charge you finance charge on your unpaid interest, however, if you were to do that, then the accumulated interest for the year would be more than 18%.

So, how am I supposed to do it?

sisterpine · #2 01/03/12, 01:04 PM

Yup, you got it right. I had to do this once in the past but it turned out that the folks not paying had no intention of paying so I ended up turning them over to a collections company and got like twenty five cents on a dollar.

CesumPec · #3 01/03/12, 02:50 PM

Yes, you charge interest on accumulated interest. That is the difference between simple interest and compound interest.

E.g. 18% simple interest on $100 principle for one year will be $18.00
18% interest on $100 compounded monthly, or 1.5% / month = $19.56

julieq · #4 01/03/12, 02:58 PM

Legally don't you have to notify the customers before you start charging interest or a service fee for carrying the account?

If so, and you do notify them that might be enough for some of them to start paying up. I don't miss collections from back when I was a medical bookkeeper. For our current small business it's payment when they purchase from us, in full. That's a whole lot easier!

foxtrapper · #5 01/03/12, 03:08 PM

You'd want to check on the legalities before you impliment this. As in how much interest, informative notifications, legal liabilities, etc. Your bank and/or ag extension can likely give you enough information to go on.

You don't want to accidently run afoul of some law you didn't know about, and find yourself facing fines and such.

lonelyfarmgirl · #6 01/03/12, 03:31 PM

No one here informs you that you will be charged interest. If you don't pay the feed mill, or the propane company in 30 days, you suddenly have a bill with interest. In those two cases, we never signed anything, nor saw and informative piece of paperwork stating they would do this. You are simply charged. We don't generally carry accounts. They are given the bill and expected to pay within 15-30 days, generally. We are fighting with a company that doesn't want to pay for stupid reasons, so we need to present them with a statement with finance charge. This isn't fun...

Harry Chickpea · #7 01/03/12, 03:36 PM

Every invoice I send out has the boilerplate on the back. State of jurisdiction, what is past due, interest fees, right of repossession, right to stop service, right to change credit terms at any point, etc..

It varies from state to state, but the U.C.C. is a blanket that trumps state laws. One item that you might want to put in your boilerplate is that change of ownership of items sold only occurs at full payment, and that purchaser agrees that items shipped can be retrieved or removed by your authorized agent without recourse until that point and the agent may not be prevented from reasonable access. If you have to hire a sheriff to collect, it makes them a lot more comfortable to see an invoice with that printed right on it.

When someone is a slow pay, figure what you can stand as a loss, and limit their amount outstanding to that amount.

Also, word to the wise - WHENEVER someone wants something "RUSH" spare no expense, need it yesterday, the chances that it is a scam to rip you off go up about a thousand percent. I only do "RUSH" with prepay via wire transfer.

foxtrapper · #8 01/03/12, 03:46 PM

Quote:

Originally Posted by lonelyfarmgirl

No one here informs you that you will be charged interest. If you don't pay the feed mill, or the propane company in 30 days, you suddenly have a bill with interest. In those two cases, we never signed anything, nor saw and informative piece of paperwork stating they would do this. You are simply charged.

That's because of at least one Wisconsin law that is on the books regarding charging interest on an unpaid debt. You need to familiarize yourself with this before you go charging interest in what will likely be an illegal manner under Wisconsin law.

Read this relevant case decision as a starting point at least:
http://www.wisbar.org/AM/Template.cf...entDisplay.cfm

DaleK · #9 01/03/12, 04:03 PM

Yep check the laws. Here every invoice has a statement at the bottom that the net is due in 30 days, or sometimes I've seen 60, then the percentage interest that's charged. 2% is normal here, I've seen 3%, I'm betting they get paid first. I don't do a lot of billed work but I charge 2%, only have one job I'm charging interest on now.

kellyst · #10 01/03/12, 04:53 PM

Check your state's laws. In Ohio, if you send an invoice to someone stating that you will charge them x% of interest if not paid in y days that clause in your invoice is not legally binding. It's only binding if you have an agreement (contract) for them to pay the interest, which means put it in writing and have it signed by the customer ahead of time. Ohio also has usary laws which cap the maximum interest rate you can charge. Check what your state requires first. If you're not good at legal research or want to save yourself some time, it's probably worth it to pay an attorney a consult fee.

Home Harvest · #11 01/03/12, 04:54 PM

Whether it's the law or not, it's simple to add the statement to your invoice. We do!

Ours simply says "If total payment is not receieved within 30 days of completion, customer will be charged interest of 1.5% per month." If they offer to pay the original amount, we are happy. If it goes to the magistrate we have additional ammo.

As has been stated, those who choose not to pay in 30 days are probably not going to pay. We routinely go to the magistrate to collect on unpaid invoices. We have also added lots of other safeguards. We are a service company.

We've had people tell the judge they were quoted a different rate. We've had customer call for someone else, usually a parent or a child, then refuse to pay based on the work being performed for someone else.

We quote the hourly rate, and that goes on the work order. If it's a phone request, we initial that we told them the hourly rate. We also confirm that the one calling will be responsible for payment, and initial that as well. If someone else will be paying, we request that they call us. We only take a work order from the one who will be paying. Most of this is fairly new. It seems that the economy is forcing people to question which bills to pay. I say don't ask for service if you can't afford it. I gotta pay my bills too!

geo in mi · #12 01/03/12, 05:48 PM

"In God we trust....All others pay cash."

lonelyfarmgirl · #13 01/03/12, 05:53 PM

Quote:

Originally Posted by geo in mi

"In God we trust....All others pay cash."

for the most part, this is the rule we follow, but when you are out on a big construction site because their loader or trak truck broke down, you don't hold out your hand to the foreman, you bill the company.

where would I find the law for this? I don't know where to look. I will try to google something.

GoldenCityMuse · #14 01/03/12, 06:14 PM

The foreman should have access to company funds, either via a checkbook, company credit card or whatever.

Otherwise it can be easy for the co to say the foreman did not have authority to encumber the company, and you are out bucks.

nc_mtn · #15 01/03/12, 06:35 PM

There are some good free excel files/spreadsheets that help. Google them.... just type in $ and then % and it does the rest.

lonelyfarmgirl · #16 01/03/12, 08:16 PM

I'm not going to explain how this all came to happen because it is irrelevant. Wether or not a foreman should or should not have authorization to pay is irrelevant and off track. We know how to run our business. Unfortunately, for the THIRD TIME in 15 YEARS, we've come upon a problem customer.

My original question was answered, thanks!

wharton · #17 01/03/12, 09:04 PM

Quote:

Originally Posted by lonelyfarmgirl

I'm not going to explain how this all came to happen because it is irrelevant. Wether or not a foreman should or should not have authorization to pay is irrelevant and off track. We know how to run our business. Unfortunately, for the THIRD TIME in 15 YEARS, we've come upon a problem customer.

My original question was answered, thanks!

I agree that the specific transaction you are dealing with is irrelevant. However, I do not agree that the issue of jobsite authorization of a work order is "off track". It's important for other small business folks here to be aware of a possible issue. Unfortunately, working in the construction industry, I have seen supposedly reputable companies use this technique to avoid paying for goods and services that they bought, and it works exactly as stated. The job supervisor calls for service, and signs the work order. The provider bills, and after 45 days, or so, calls to enquire as to why their billing is not being paid? At that point they are told that only a limited number of "key" people, working at the company's office, are allowed to authorize purchases, and absent a signed purchase order, you aren't getting paid. It isn't legal, or ethical, but it happens every day.

lonelyfarmgirl · #18 01/03/12, 09:59 PM

Thats all fine and good, but that is not even remotely close to how this situation went, but I'm sure other people appreciate that information.

am1too · #19 01/03/12, 10:15 PM

Quote:

Originally Posted by GoldenCityMuse

The foreman should have access to company funds, either via a checkbook, company credit card or whatever.

Otherwise it can be easy for the co to say the foreman did not have authority to encumber the company, and you are out bucks.

In that case the foreman is liable. Go after him and file liens on stuff till you get your money.

am1too · #20 01/03/12, 10:20 PM

Quote:

Originally Posted by wharton

I agree that the specific transaction you are dealing with is irrelevant. However, I do not agree that the issue of jobsite authorization of a work order is "off track". It's important for other small business folks here to be aware of a possible issue. Unfortunately, working in the construction industry, I have seen supposedly reputable companies use this technique to avoid paying for goods and services that they bought, and it works exactly as stated. The job supervisor calls for service, and signs the work order. The provider bills, and after 45 days, or so, calls to enquire as to why their billing is not being paid? At that point they are told that only a limited number of "key" people, working at the company's office, are allowed to authorize purchases, and absent a signed purchase order, you aren't getting paid. It isn't legal, or ethical, but it happens every day.

Yes I would not do business with a new customer without everything being in writing from the head office. They would need to get somebody else.