A late payment fee is a charge applied to a customer if a reminder or collection notice needs to be issued for an outstanding bill.
If a customer fails to make a timely payment, it is customary to dispatch a payment reminder, including a late payment fee, approximately 30 days after the invoice’s due date. This gently reminds the client that they still owe your business money.
Sending a free reminder is the norm before thinking about charging for additional reminders. This goodwill gesture helps maintain a strong relationship and is often the final courtesy before implementing fees.
How much can you charge for a reminder fee?
A reasonable fixed penalty late fee or interest capped at around 10% annually (equated to a monthly figure) can be imposed in Australia. It is crucial to understand that late fees are designed to incentivize timely payments rather than serve as a source of profit for the business.
For balances below AUD $1000, it is generally not advisable to levy interest; instead, a fixed late fee ranging from AUD $20 to $50 per invoice is common. For balances of AUD $1000, you should charge an interest-based fee. The maximum amount you can charge is 10 percent per year.