Late Payments: How to Calculate and Bill Them?
Contents :
To learn more, read our guide: Customer Follow-Up and Collection: Best Practices.
- What is late payment?
- La définition du retard de paiement :
- Le délai de paiement d’une facture :
- How do you calculate late payment penalties?
- Legal requirements for late payment penalties :
- Le calcul du taux de pénalités de retard et des indemnités forfaitaires :
- How to prevent late payment?
Visit late payment is often a source of tension. For the creditor company firstly, because it suffers from an imbalance imbalance cash flow. It has also seen its DSO increase.
Ce déséquilibre peut avoir une incidence en cascade sur l’ensemble des chaînes de production.
For thecustomer company too, as the delay damages both its reputation as well as its commercial relationship.
This complicated situation calls for swift solutions in order to recover this debt.
The law provides for measures to help companies to fight against bad payers. Les late payment penalties is one such system. But there are also less confrontational schemes such as the amicable collection.
What is late payment?
La définition du retard de paiement :
Late payment is the situation in which a company fails to honor an invoice on time – after the due date stipulated in a contract or agreement with the creditor.
The retard of payment can have financial and legal consequences for the company in question. In particular, if the company is unable to repay the debt within a given reasonable time.
Late payment means managing customer risk.
Le délai de paiement d’une facture :
Il existe différents délais de paiement :
- The cash payment. The debtor pays in full full amount of amount of invoice upon delivery or completion of a service.
- The payment after receipt. Le débiteur s’engage à régler la facture dans un délai de 7 days.
- The default payment. Le débiteur a 30 days to pay the invoice amount. This method of payment prevails in the event of no mention.
- The special payment terms. The debtor company has 45 or even 60 days to settle the invoice.
Once the payment date has passedand in the case of an invoice between two professionals, late payment late payment penalties may apply.
Late payment penalties come into effect on the first day first day of overrun. However, we advise you to consider amicable collection before considering any penalties.
How do you calculate late payment penalties?
Legal requirements for late payment penalties :
A quick legal reminder: the law allows all companies to use late payment penalties, provided they have a commercial relationship with a professional. On the other hand non-professional entities are therefore excluded from the scheme.
All companies must anticipate penalties and make sure they are mentioned:
- Les conditions générales de ventes,
- The quotation or order form,
- Les factures,
In the event of late payment, the company must make reference to the conditions of application of interest rate as well as penalties.
In the event that the general conditions do not mention the rate, the law provides for a single single application rate.
Calculating late payment penalties and lump-sum compensation :
The latest ECB rate (dated July 27, 2022) is 0.50%. Any company wishing to apply late payment penalties must charge at least three times the minimum rate.
The rate minimum should therefore correspond to 1.5% (1.5% = 3 x 0.50%). Concerning the maximum rateThe maximum rate is 10 points higher than the minimum rate, i.e. 10.5% (10.5% = 10% + 0.5%).
- Minimum late payment penalty rate in 2022: 1.5%.
- Maximum late payment penalty rate in 2022: 10.5%.
Maintenant que le taux de pénalité est calculé, il est nécessaire de l’intégrer à une formule pour calculer le montant réel des pénalités de retard.
Amount of late payment penalties = (Amount incl. or excl. VAT x Penalty rate) x (number of days overdue / number of days in the year).
To this formula can be added the amount of the lump-sum compensation. This amount is different from the amount of late payment penalties. It corresponds to 40 per unpaid invoice.
For example, a company is 30 days late in collecting an invoice. The penalty rate is 10.5%. The lump-sum penalty applies. The total amount of the invoice including VAT is 30,000 euros.
Cumulative amount of late payment penalties and lump-sum indemnity = (30,000 x 10.5%) x (30 / 365) + (40 x 30) = 1202.58 euros.
Why Do Payment Delays Occur?
Most often, this is due to an incorrect invoice—such as an error in the amount, address, or contact information. These disputes take a long time to resolve, and some of these invoices are never paid. That’s why it’s important to check each invoice before sending it and to resolve disputes quickly.
The Role of the Credit Manager in Dealing with Late Payments
The credit manager is responsible for optimizing accounts receivable. To reduce late payments, he takes proactive measures: sending reminders before the due date, setting internal credit limits, scoring customers, and promptly resolving disputes. They work closely with the sales team and can grant customers access to the system so they can enter their expected payment date or the reason for a dispute themselves.
Reducing delays means reducing DSO and working capital, and freeing up cash flow to finance growth.
How to prevent late payment penalties?
Penalties are due from the first day of delay. The creditor company can therefore send an invoice mentioning the date of payment. penalty rate and lump-sum compensation.
However, penalties and indemnities are not legally binding. They can therefore be used as a warning in the collection operation.
L’objectif du recouvrement est de préserver la qualité de vos relations commerciales et votre trésorerie.
Aston AI is the ideal solution for preventing late payments. This collection solution allows you toautomate customer reminderspersonalize them, track all due dates, and automate invoice creation.
To calculate your penalties in just a few clicks, download our Excel template for penalties and late fees.
See also: Why Unpaid Invoices Weaken a Business and How to Protect Against Them.
