Get Our Email Newsletter

How much can I charge for a past due fee?

Thea Dudley

Dear Thea,

We are currently charging late fees for past due invoices. We want to see if there are any guidelines out there for what to charge our customers. Thank you.

LBM Resources

White Paper: Achieving Growth During a Labor Shortage

This White Paper shows how Epicor can help boost your LBM business. Topics covered: How Did We Get Here? Industry Impact What You Can Do ...

Uncertain service charges in Chickasaw


Dear Uncertain,

- Advertisement -

If I said “let your conscience be your guide” would that work? Recapping your question for those of us (me) trying to process it: You are currently charging service charges on past due invoices but want to know if there are any guidelines on what you should be charging.

I come up with more questions for you than you did for me.

  1. What is the rate you are currently charging for late charges?
  2. How did you arrive at the current rate?
  3. How long have you been assessing late charges?
  4. Are the late charges spelled out in your credit application terms and conditions?
  5. Have you asked your attorney what is the maximum amount you can legally charge?

Those are the preliminary questions that lead me to this … How do you explain your charges to customers? You should have a logical and well-thought explanation prepared in advance to offer customers. Nothing is quite as haunting as bumbling through a response that goes down like a fat kid on a seesaw—just a fast and loud thud.

- Advertisement -

The short answer to your question is “no.” There is no credit manager guideline for what to charge customers for service charges or late fees. The more complex answer is “yes, there is, it is called the law.” Most, if not all, states have some context around what you can legally charge. There is usually a maximum level.

If you look to your peers on this or review a cross section of credit applications, there does appear to be an “industry standard” of 1.5% per month or 18% per annum. Every now and again I see some really ambitious company up the ante and play with those charges. My current reigning favorite goes something like this: “We are a for-profit corporation. We can adjust to you paying your invoices late and will be charging 3% per billing cycle to accommodate you.”

My credit manager heart skipped at bit on that one, but I must say that I have to admire the set of nuggets on the person who wrote it, got it on their credit application, and manages to get people to sign it (which just goes to prove, nobody ever reads them until we are in court or ticked off). Frankly, I am not sure if that amount is not legal, but back to your question…

Your company attorney or a construction litigator would be a great resource for you. Depending on whether or not you are a national, regional, or single-state organization, they will be able to guide you past 1.5%, or the maximum allowed by law in your state.

I am all for charging service charges. After all, if my company is going to “support” financing beyond what was agreed on, we should not be out any financing costs. I also am not a fan of gouging my customers. If this is a partnership, let’s treat each other respect and fairness. You can start whistling that catchy little Jiminy Cricket tune again. Go on, you know you want to.

With more than 30 years of credit management experience in the LBM industry, Thea Dudley consults with companies on a wide range of credit and financial management issues. Contact Thea at

Get our free newsletter

Join thousands of other lumber and building material industry leaders and keep up with the companies, people, products and issues shaping the industry.

What's New

Digital Partners

Become a digital partner ...

Sales Comp Study

Download this 55-page, in-depth study by LBM Journal of industry trends in sales force compensation and benefits. See how your organization stacks up.


- Advertisement -

White Papers

View all ...

- Advertisement -

Partner Content

View all ...

- Advertisement -

Registration is now open for the LBM Strategies 2024 Conference