As a consultant I state that I will charge a 10% late fee for every week a payment is late. I’ve never had a late payment. I’d say offering a discount does the exact opposite.
That just gave me a flashback to my college accounting courses. So many examples where a discount was offered for on time payment. Must be a reason that technique has been around long enough to be a fixture in accounting textbooks.
From big co perspective, absolutely true. Tons of other priorities to get out of the door than paying on time. Our invoice process was dreadful. Thinking back, if a vendor made it easy for us, we might always pay on-time!
How big is your average client and how heavily utilized are you? Your experience is very different from mine, but I may be working with larger companies (or you might be working with an idiosyncratic subset --- I don't think I am, though).
I work with companies 1-50mil in revenue typically. I don’t know what the law is when it comes to late fees, the language is mostly there as deterrent. That being said I am VERY picky about who I work with so I’ve never had a late payment or nonpayment, I suspect that’s more due to the screening process than the language in contract. If I ever had to actually charge a 10, 20 or 30% late fee, I would not pursue it and choke it up to a business loss and forget about it, move on. Cost of doing business.
I’m pretty sure that violates most State usury laws.
Note that I’m not referring to charging interest for late payment as being illegal. I’m specifically referring to charging 10% compounded weekly, which comes out about 14200% annualized.
Probably not. Even in states that don't exclude fees unrelated to an actual loan of money, it looks like contracted late fees between businesses are excluded from usury definitions (that's the case in NY, for instance).
I'm curious if there's any examples of this ever happening. Some company keeps ignoring a contractor's requests for a couple of years and ends up owing ~$20 million on a thousand dollar debt.
But like you, I'm pretty skeptical. Probably wouldn't hold up in court.
The outcome would be entirely random - dependent on the inclination of the judges.
A sensible business would settle out of court with a very low offer. A sensible contractor would accept the offer.
But generally this is another example of corporate privilege.
In reality, late payments kill many small businesses. In a political system that was genuinely friendly to the small guy, fines for late payment would be mandatory.
I tried both methods and clients would rarely pay the premium compared to those who would avail of the "on time" payment discount.
I have less happier clients when I make them pay a fee than when I take away a discount although mathematically they are the same number.