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  1. #1
    Join Date
    Nov 2008

    Customary late fee percentage to charge?

    What is the name of your state (only U.S. law)? California

    I did some accounting work for another accountant who has failed to pay me going on 3 months now. He has been invoiced several times. Is there a customary late fee percentage to charge? I am drafting a final letter to him demanding payment and would like to use a reasonable percentage. Unfortunately there exists only a verbal agreement for the work and no previous discussions of "what if" for any late payments. Thanks for any info.

  2. #2
    Join Date
    Oct 2005
    Good question. An answer could be long(er), reflect the murky state of the law and by no means purport to be definitive. In your case, on the facts posted, I believe it’s simpler. I wouldn’t think about a late charge in this instance, but I would start using written agreements and including some provision in the future.

    I think the fact that you don’t have a written agreement, don’t have a prior history of dealings and have already sent invoices without including a late fee should control your present decision.

    To first complicate things, note that “late fee” is often used interchangeably with service charge, delinquency charge, and finance charge. If you work your way through Calif. statutes in the Civil Code, Insurance Code, Finance Code and the Calif. Constitution, as well as some Federal Statutes, the terms have specific and different definitions. If you draft an agreement for the future, you’re probably best-served by late fee or service charge.

    You’re safest if your client knew in advance – i.e. in a written agreement – of an intention to make the charge and all of your invoices had language to the effect that “All accounts not paid within X days of the date of this invoice incur a Y% monthly service charge”. Calif. courts have allowed a fee in the absence of contract when all billing included the language. Yours don’t, and I’ve experienced rejection of the invoice when there was no related agreement. You’re not going to try to set precedent, so accept the fact that it could go either way on any given day.

    Calif. courts have held that the amount of service charges charged by a creditor must be reasonably related to the actual damages suffered by the creditor and recognized that accounting and collection costs are incurred when a customer fails to pay a bill. On this basis, service charges of up to 18% APR or 1.5% monthly have been upheld when a creditor could make the requisite showing. That’s not to say that all creditors could, if required, or that a higher cost could not be proven, but that number presently has support in case law.

    Reference was made to the Constitution because Calif. usury laws cap the interest rate on any loan at 10% APR. However, courts have held that a sale of goods or services on credit is not a loan, and therefore not subject to the usury laws. Still, you should be mindful of any ruling which changes this in the future (and could cap you at 10%).

    Calif. Civil Code sect. 3302 provides “The detriment caused by the breach of an obligation to pay money only, is deemed to be the amount due by the terms of the obligation, with interest thereon.” The statutory pre-judgment interest rate is 10%, and I think that you must sue (in Small Claims?) and be content with that for the instant matter.

    Sorry, I’m sure that you were hoping that someone would just post a number. In fact, it’s a difficult area.

    Tell your former client that the letter is the final effort to resolve the matter voluntarily. If payment is not received within X days of the letter date, you will pursue involuntary recovery and will include principal, costs, fees and interest in your demand. Then, do it.

  3. #3
    Join Date
    Nov 2008
    Thank you very much for the info. I didnt have a contract because I have worked for this accounting company as a private contractor for 3 years as needed which is some what normal in my field. I am not sure its even possible to get a signed contract on every job I do because that would amount to many contracts per week from the same person over and over. I never have had problems before and was operating under the assumption that it would be business as usual and he would pay the bill! Maybe since the expectation to pay his bill had been met in the past, that its not so out of line to have an expectation for this bill? Covered under a past practice rule maybe?

  4. #4
    Join Date
    Oct 2005
    A “prior course of dealings” has been treated by the courts in a manner similar to charges on the invoice with no contract support – i.e. if the late fee/service charge language appeared in all billings, it’s regarded as an implied term of your agreement and considered as part of that agreement when new dealings arise.

    That means that the language shouldn’t be used sporadically, appearing on some and not on others, as yours would reflect. If you’re an independent contractor and are going to begin imposing a charge, the safest way to do it is to (1) give advance notice to existing clients – e.g. in the billing prior to implementation – regardless of the existence of a contract and (2) include it in all contracts and/or billings for new clients. Then it’s part of the express or implied agreement with all clients. For this client, where contracts pose a problem but there may be a continuing relation, I’d at least give separate notice of intent to begin imposing the charge. Make it generic but keep a copy.

    Also, be mindful of your internal practices. Once the fee/charge is implemented, the billing shouldn’t be treated as paid if the penalty is not included. You undermine your claim of entitlement when you impose it and then waive it.

    All this being said, it sounds as if you’re an IC and will use Small Claims if you do have to “go legal”. If you don’t get paid and a court also doesn’t include it in an award, you’re no worse off than you are now, and perhaps it acts as the motivator that you intend. Keep it in the 1 – 1.5%/mo. range. Don’t be devastated if it’s not paid by or awarded against this client, because now you know some of the pitfalls.

    Use it to motivate, don’t depend on collecting and ignore the trappings, or establish a right and be consistent.

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