Advice on negotiating a contract...

[consultant]

Hi everyone, I'm a consultant who is negotiating a contract with a new client. Some friends of mine who also did some consulting were paid very late (90+ days). So while negotiating with this client I got them to agree there would be built-in penalties for late payment. It's now up to me to propose a schedule of penalties.

They are supposed to pay my invoices within 30 days, so I am thinking 5% penalty after 15 calendar days and another 5% after 30 calendar days.

Is there a standard or some other kind of template I could be using to come up with this? Anyone got some advice?

Thanks!

[tylerhutchinson]

I am not aware of an industry standard. I have a late fee on my contracts but it is a flat fee. $250 for every 30 days it is late. a Percentage may be difficult to asses if it is something like a payment plan or with milestone payments. Would the % be based off the payment amount, total fees, or what has been accumulated so far?

[consultant]

Thanks for replying... The contract is straight hourly and billed monthly; amounts would exceed $15k most months. So the percentage would be based on the amount invoiced. If they owe me $10,000 and I use the 5%/5% schedule, the penalty would be $500 after 15 days and another $500 after 30, which seems like it is enough to produce the desired incentive to have them pay on time. However, since they have been known to pay several months late, your approach of additional fees per month might be a better approach.

[huggytree]

i believe there is a legal limit to what you can charge for late fee's....i thought it was 1.5percent per month...thats whats in my contract...

another way to go about it is to charge extra and give a 2 percent discount for paying on time.....my suppliers give me 1-2 percent for paying within 15 days

it may depend on your customer to which way you should go...a discount works best for me.......a discount is not a punishment its a reward

a late payment fee is pure punishment....

[DLWindsor]

We also add 1.5% to all invoices over 30 days late. However, before we start adding finance charges, we always send a courtesy email reminding them of the outstanding invoice before we add finance charges, incase the invoice was misplaced or for some reason never made it to the accounting department.

We have a Client who is late every single month and I think we may talk about implementing the above 2% discount idea for paying on time for them. That is a great idea Huggytree!

[huggytree]

if the customer is consistantly late but always pays i would just automatically add 2-4percent into their charges from the start and just let them keep paying late...

by adding extra charges or making it obvious you could lose a good customer...i would only use the interest charge or discount idea on NEW customers...any changes to existing customers risks making them angry....id just sneak the charge into the bill and not bring up a policy change.....call it a 2011 price increase

[seolman]

Another method of eliminating late fees is to have them pay a retainer and invoice against these advance payments. Ensures you are always paid on time.