Do small businesses generally pay finance charges from their vendors?

Question

I am considering starting to charge finance charges (1.5% per month) to our customers who have balances over 60 days (our terms are net 30. I was wondering if I would create more work for our accounts receivable department or if customers generally pay the finance charges).

Answer 1

I agree with the previous comment. Incentive is a much better way to handle late payment.

The finance charge not only increase paper work for your AR but also for your tax accountant(s).

Best wishes.

Answer 2

A smarter way to approach this problem is to use a reward system instead of punishing your customers. Entice your clients to pay early by offering an incentive for paying within 2 weeks, 1 month, or whatever you decide. The discount can be as small as 1% but it can greatly improve your chances of obtaining the money you are waiting on as well as improving your cash flow situation.

Answer 3

I work in the construction and we never pay them unless there's a lien against the property, then we have no choice. Be sure to let your customers know you are charging them. Put it in writing and dont call it interest, call it "time price differential", "service charge", "late fee" etc. Keep calling your customers for the payment, the squeaky wheel gets the grease.