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Assessing Finance Charges: Late Payments

When assessing finance charges it’s best to review them monthly to keep up with everything owed.

Finance charges can include loan processing fees, interest charges, late fees, and other costs going beyond the amount borrowed/owed.

Luckily, there are ways to improve your cash flow and lessen the amount of finance charges you need to assess:

  • Offer discounts when your Clients or Customer pay early

  • Reduce the payment cycle. For instance you can have the payment due on the 21st day instead of the 30th.

  • Allow customers to pay electronically by setting up a merchant account

  • Be more aggressive when it comes to collections

  • Notify customers before you begin reviewing charges - giving them an opportunity to catch up on payments.

Another great way to keep up with payments:

Have a bookkeeper help you avoid late penalties and prompt payment of invoices, so you can better track what payments are paid and what payments need to be collected.

When setting up the process for handling late payments or finance charges, it’s important to ask yourself:

  • What annual interest rate will you charge?

  • Will there be a minimum finance charge?

  • Do you want to offer a grace period?


To calculate late payments on finance charges:

  • Amount customer owes you multiplied by flat monthly rate

  • If your flat monthly rate is 10% and the customer owes you $500, take $500 multiplied by 0.01 which equals $50.

  • $50 will be added to what the customer owes you, $500, for a total payment of $550 for the month.

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