Is it legal to charge late payment, penalty or cancellation fees?
With all the Corona and COVID issues at the moment, there’s so many order cancellations, late payments, and customers defaulting on invoicing at the moment – it seems timely to discuss the legalities of charging non-payment, late payment, penalty or early cancellation fees. So how can you charge penalty fees legally?
Please note that this is this is general advice only.
What if they agree to pay a monthly membership or subscription, but then stop paying? Can you charge them a non-payment or penalty fee? Can you charge them the remainder of the contract amount?
Some contracts specify what will be payable if there is a breach by one party of a particular contractual obligation (such as cancellation or penalty fee). For this to be enforceable through court, the sum needs to be an accurate reflection of the cost of damages incurred. If the amount seems artificially high or unreasonably overinflated, it’s unlikely to be enforced.
You are a product business, invoicing for payment. You give a due date, but add a 10% late fee, or charge interest on the overdue amount.
All of these terms and conditions can be included into your client agreement and customised for your business to make sure you’re covered. If you’re having difficulty with non-payment from clients, then perhaps it’s time to get serious, and contact me for a chat.
Disclaimer: This blog is written to support business owners to consider legal requirements and issues that may arise in business. The information provided is for general and educational purposes only. It is not intended as legal advice for your individual circumstances. Please consult your lawyer for advice specific to you and your business.