Is there a standard finance charge to charge customers who pay late? I have a blank contract that states that if my customers pay late I can access a finance charge. What is a fair and reasonable finance charge?

A fairly standard amount in banking is 5% of the amount of the late payment. So, if the payment is $100 and it becomes past due, a $5 late fee would apply for that payment and for each payment that becomes past due. If the payments are monthly there would usually be a 10 or 15 day “grace period”. When the lateness of the payment exceeds the grace period, the late fee would apply.

 This would be an example of a standard late fee for monthly payments on an installment loan. As we all know, late fees on credit card payments (revolving charge) can be far in excess of 5% of the payment amount. However, since you’re dealing with a business clientele with whom you have a sales contract of some kind (I’m guessing these are your regular customers in possibly a small, retail business) it doesn’t sound like your credit arrangement is similar to that of a credit card company. I would recommend the 5% and the grace period.

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