Late fee in Core

Overview

At times, you can include a late fee or finance charge on your invoices. Typically, companies calculate late fee or finance charges on the last invoice and the clients pay it with the last payment. In some cases, companies prefer to calculate late fee on each outstanding invoice and clients have to pay it for every such invoice.

In Core, you can calculate late fee on the outstanding balance or invoice amount based on a specified date. You can define the aging period, payment terms and interest charges at the project or global level. It takes into account payments applied to invoices and late fees before calculating the new late fee on the unpaid balance.

Example: If you bill a client for $5000 and he makes a $2500 payment within the payment term, but is late for the second payment of $2,500, Core calculates the late fee on the outstanding balance of $2500 and not the entire principal amount of $5000.  

Late fee invoices are created separately and printed on selected invoices formats and statements. They have the same A/R account as that of the parent invoice. They age like any other invoice and print on aging reports. You can write off all or part of a late fee invoice and apply payment to it. When you create a late fee invoice in the Invoices screen, Core generates a manual invoice internally with the same invoice number as that of the original invoice, but with the prefix ‘LF’ (say LF-1001).

Calculation

The method to calculate late fee on past due invoices incorporates the approach of date stamping the late fee amount. Core calculates the late fee based on the date you choose in the Invoices screen for the outstanding balance or invoice amount. You can record the late fee payments separately in the Payments screen and then view several related reports, such as Account Transaction and Cash Receipts Journal.

It is better for the client to pay off the late fee invoice before paying the original invoice amount (principal).

Example: The following example clarifies the process:

January 1, 2017: You generate an invoice #1005 for $1000 for Project A. The project is set to charge 1.5 % interest per month on past due invoices. The grace period (payment term) is set to 45 days.

February 15, 2017: This is the 45th day since the invoice was generated and, therefore, within the grace period. You open the Invoices screen and bring up this invoice #1005. You calculate the late fee for this invoice by setting the ‘Create Late Fee Up To’ date to February 15, 2017 and clicking Create. This results in zero late fee since it is within the 45-day grace period. Therefore, total owed on invoice #1005 = $1000

February 16, 2017: This is the 46th day since you generated the invoice. You open the Invoices screen and bring up the invoice #1005. You calculate the late fee for this invoice by setting the ‘Create Late Fee Up To’ date to February 16, 2017 and clicking Create. This results in a late fee of $23 ([$1000 x 1.5 x 46] / [100 x 30]). Therefore, total owed on invoice #1005 = $1000 and on LF-1005 = $23.

July 20, 2017: This is the 200th day since you generated the invoice. You open the Invoices screen and bring up the invoice #1005. You calculate the late fee for this invoice by setting the 'Create Late Fee Up To’ date to July 20, 2017 and clicking Create. This results in a late fee of $100 ([$1000 x 1.5 x 200] / [100 x 30]). Therefore, total owed on invoice #1005 = $1000 and on LF-1005 = $100.

July 31, 2017: Client makes a total payment of $800 after receiving the July 20 statement. The payment is applied as:

$700 towards principal = Invoice # 1005
$100 towards late fee = Invoice # LF-1005

August 19, 2017: You get ready to generate a new invoice statement. This is the 230th day since you generated the first invoice. You open the Invoices screen and bring up the invoice #1005. You calculate the late fee for this invoice by setting the ‘Create Late Fee Up To’ date to August 19, 2017 and clicking Create. Considering the payment made on July 31, the late fee amount would be:

Late Fee = ($1000 x 1.5 x 230) / (100 x 30) - $100 = $15
Therefore, total owed on invoice #1005 = $300 and on LF-1005 = $15.

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