Penalty for late payment?
I have a quick question for you indusrty biz gurus. I have a client to whome I submitted an invoice almost 60 dyas ago, who have not paid yet. I am considering adding a late payment penalty to my re-issue invoice, but am not sure of the protocall. Was this something i needed ot tell them up-front back then? How much do I charge? And of course the old "will they ever call again" dilema.
We usually send Vito "The Persuader". We don't usually tack on late fees first time around... just as long as we get paid. We DO say something about it though. Calls, emails, letters, depending on how late it is. None of our good clients pay late. The ones that pay late we usually don't want anyway.
If it wasn't mentioned up front, I think it's poor form to try to retroactively apply it. I say you put him on the "not so good" list, and he's on a cash prepaid in full basis for any and all work to follow. Meanwhile, keep sending registered letters he has to sign for, to create a trail in case you have to go to court later. At 120 days, turn it over to a collection agency or write it off for tax purposes.
If the guy is just a client, you have little leverage, he's not planning on coming back, but if he's a local producer that works with the same small group of vendors and you, you can sometimes use the leverage of reputation. Once everybody knows he's a bum, he loses their cooperation: they may still take his business, but it will always be on unfavorable terms, cash up front, no credit, no releasing tapes without payment in full, no special discounts or favors, that sort of thing... and he will be miserable.
Understand, I wouldn't go threatening to defame him in the production community, or public forums, particularly if he's the litigious type. But there are ways people find out about who is a stand-up guy and who is not.
Something Leo T. once said bears repeating too (paraphrasing): everybody gets into some bad luck from time to time, and if you're not 100 percent sure the guy is a crook, your better nature should be to find out if he's just got a temporary cash flow problem, and maybe you can help him thru it if he would just send you a token percentage for now - until he gets on his feet... say, 20 bucks a month or a week, then the balance when he can manage it. When he's back on top, he will surely remember you as a special friend, and perhaps more work will come of it. It's up to you and your budget just how generous you can afford to be in such a case, and nobody can tell you exactly whre to draw such a line. Myself, I tend to be on the cynical side, having been burned often enough already. I give everyone just one free shot to try to rip me off, then it's war. The minimal payments also help your legal case, should you need to sue later anyhow. The are evidence of a contract demonstrating consideration, is the legal term, though I'm not a lawyer.
Mark's advice is very good, especially regarding establihment of a paper trail should you end up in litigation. As always, put your terms down in writing in advance before doing any work for any client.
My personal services invoices (after marrying a former SEC investigator/broker/CFO who took over my cashflow) reflect a penalty of market rate interest (currently 17.825% compounded weekly) for slo-late pay. I also discount for 14 day and 30 day and take away the discount for late pay (35 days plus). My invoice has a 30% markup/pad built in so discounting 15% for 30 and 25% for 14 is not a true loss. My ps invoice was always delivered at the end of the event or session directly to the producer or unit manager and a followup copy sent direct to accounting within 12 hours.
Prior to that, I'd do what many of us do - first time client after 30 gets a soft letter asking if they forgot their obligations. After 45 client gets a hard letter asking if they intend to pay in a timely manner. After 90 days client gets a nastygram from "management" with legal jargon - in effect a pay on demand. After 120 days they get the collection notice and in Nevada, I attach a mechanics lein which would cost me about 125.00 up front and that cost is passed thru on collection demand. Worst case scenario, court fees and attorney time is also added at judgement.
If you have national accounts, you'd be suprised what a call to corporate counsel can do - most "coporate" clients' - ESPN, HBO, Showtime, MSG - legal departments have no idea that their accounting people are slow paying the vendors. We'd put a call one time into Cablevision on a 60 day (after their accounting people told us corporate policy was first time accounts get paid on a 120 day until an account has established a track record?) - their legal department shipped a check FedEX from legal's account along with a letter of apology explaining that the person(s) who made that statement were no longer with the company.
BTW, I kept working for that client for three years - no reprocussions. And my check was alway there 14 days after the event.
>>At 120 days, turn it over to a collection agency or write it off for tax purposes.>>
I was told by my tax advisor that I couldn't "write off" (claim a loss for/deduction for) a bill that wasn't paid; i.e. "I got stiffed."
I didn't think this was true so I looked up some IRS information, and it seemed to say that you can claim a loss limited to your expenses, but since my bill was entirely based on service and labor, no merchandise purchased, there is "nothing to claim."
If I SPENT $1,000 on supplies, I could deduct the actual expense I incurred ($1,000) but could not write off the loss of labor since I never had to pay anyone...
I was surprised by all this, and thought there would be something under a "bad debt" writeoff, but that, again, seemed to be had I not been paid for a physical loss of merchandise. There seemed to be no IRS way to recognize labor loss.
This seems almost against logic... I earlier posed a scenario to the tax advisor (who is all labor-based as well) if I never paid him for the service work he did, he couldn't claim that as a loss or bad debt? He said no...
While non of the above is legal advice, it's just been my experience of trying to "write off" non-payment for services. Is there a way you know of to write off getting stiffed?
In this thread a little farther down, Bob says something similar,
>Name: Bob Cole
Date: Jan 26, 2006 at 8:33:47 pm
Subject: Re: How much is too much?...
[Charlie King] "The only exception has always been if I am really involved with a charitable organization, then I will give my work for free as a labor of love, but then too that is also tax deductable."
I have been told I can not take a tax deduction for donating my labor. >>
Sounds like a version of my non-payment situation... whether you donate your labor, or don't get paid for it, the IRS seems to not allow it, as it only allows you to claim expenses you paid, not losses to income... Even "gambling losses" they just recognize you basically spent (lost) money.
The rules seem to use a circular logic, that "you can't claim money you never had to begin with."
If there is a way to write off labor or non-payment, I would be all ears!
this was my experience as well a couple of years ago- talk about insult to injury
not a lot can be done, esp. if they go out of business
My husband and I have done a massive amount of labor on a church rental. What if we bill the church for our labor with the understanding they don't have to pay it. Just for our information and claim on taxes...Any legality in that?
Now that you put it on the internet where the IRS can find it, I'm thinking: "no".
I know I put it out there, but if it's not black and white, forget it. Don't want to deal with the IRS.
[David Cohen] "Was this something i needed ot tell them up-front back then? How much do I charge? And of course the old "will they ever call again" dilema."
Yes, we have a line in our invoices that shows the late fee schedule. You could try to come after them now for late fees, but it's always better to have it in your invoice.
Late fees are added after X days
% is added for payments between X and Y days late
% is added for payments between Z and A days late
% is added daily for payments received beyond A days late.
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[Mark Suszko] "If it wasn't mentioned up front, I think it's poor form to try to retroactively apply it. I say you put him on the "not so good" list, and he's on a cash prepaid in full basis for any and all work to follow. "
I had a client who was actually pretty embarrassed about not paying (extenuating circumstances, blah blah blah). He appreciated that I didn't try to add late fees, but also understood why I was going to ask for cash up front from then on. We were fine. Did a lot of business together.
My favorite trick was to come up with the "real" number for the job, then add 15%. THAT was the number I put on the invoice, with a "15% discount for early payment," ie, 30 days. So if he pays "early," he gets my "real" price. After that, the "penalty" is what he THINKS is the real price.
But yeah, no way you can add penalties after the fact. The only ethical way to change the terms of the deal while it's underway is if you both consent.
Unless of course you're operating a bank, credit card or mortgage company, in which case your clients have already signed a contract saying that you can change the terms at will. Then you're golden.