How to calculate and invoice late payment?

How to calculate and invoice late payment?

Contents :

1. What is late payment?
   1. The definition of late payment :
   2. Invoice payment terms :
2. How do you calculate late payment penalties?
   1. Legal requirements for late payment penalties :
   2. Calculating late payment penalties and lump-sum compensation :
3. 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.

This imbalance can have a cascading effect on all production chains.

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. Visit late payment penalties is one such system. But there are also less confrontational schemes such as the amicable collection.

What is late payment?

The definition of late payment :

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.

Invoice payment terms :

There are different payment terms:

• 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. The debtor undertakes to pay the invoice within 7 days.
• The default payment. The debtor has 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:

• General terms and conditions of sale,
• The quotation or order form,
• Invoices,

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%.

Now that the penalty rate has been calculated, it needs to be incorporated into a formula to calculate the actual amount of late payment penalties.

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.

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.

The aim of debt collection is to preserve the quality of your commercial relations and your cash flow.

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.