If you need to charge your customers an additional amount when invoices are not paid on time, you can use invoice late fees.

For example if a customer invoice is due on the 10th of the month and you have set a 7 day grace period, then an invoice late fee would apply on the 17th of the month and calculate based on your configuration. Each overdue invoice will create a single late fee. There are many ways to configure how the charge is calculated and applied. This article covers these in detail.

💡 If you are trying to create a single late fee or charge for multiple invoices for the same customer, check out statement late fees here.

There are several types of late fee: interest rate per-annum (prorated), percentage and flat rate. In this article you'll learn how the different types of late fees in Paidnice work and how they can be applied in your accounting system.

To start click the invoice late fee button when you are viewing the group you wish to apply a late fee to.

You'll then need to configure your new late fee, first select the main configuration options

First you need to decide whether the late fee should be issued as a new invoice, or whether it should update the original invoice as an additional line item. In both cases the invoice changes (or the new invoice) will reflect in your accounting system and in Paidnice. Paidnice always syncs changes to your accounting system.

Here's an example of an invoice created as a new late fee:

This option can be useful if you often waive or void late fees, as voiding a single invoice is easier than editing an invoice. It can also ensure any late fees are added in the current (open) accounting period and not editing invoices in a prior period.

If you choose to create a new invoice, in Xero you can choose to send an approved invoice, or a draft invoice. Depending on your preferred business process you may wish to review and approve late fees.

This is an example of an invoice that has been updated to add a late fee line item:

If you add a line item to the invoice, then the invoice period needs to be open/unlocked in your accounting system - if you close your financial periods promptly after month end or apply many partial payments to invoices you may need to choose the new invoice option.

If you choose to update the original invoice, you can revert to creating a new invoice if the original invoice cannot be updated

There are 3 types of late fee you can use in Paidnice:

A late fee of interest rate per annum will calculate the selected annual interest rate on the overdue invoice balance and apply it pro-rata since the due date, or since the last time the late fee was charged if the late fee policy is repeating.

This can be used to apply interest to overdue or late invoices or calculate a finance charge. A grace period on the late fee will cause the fee to apply a number of days after it was due, but the pro-rata period is always based on the due date.

For example an interest rate of 12% p.a. applied to a $1000 invoice that is 1 month overdue, would give a late fee of $10 because it's 1% per month pro-rata.

A percentage late fee applies the same percentage amount regardless of how long the invoice is overdue and will apply the same amount each time it repeats if you choose to repeat the late fee.

This can be useful for charging specific late fees for an overdue invoice.

For example an invoice of $1000 that has a 3% percentage late fee applied would incur a late fee of $30.

A fixed late fee will charge the same amount regardless of the balance of the overdue invoices.

This is often used to apply a simple fixed administration fee or late fee. For example a customer with an overdue invoice of $1000 with a fixed late fee of $50, would always incur a $50 fee.

When Paidnice sends the late fee to your accounting system you can control what ledger account (Xero) or item (QuickBooks) is used on the invoice line for the late fee.

For example you may have a separate revenue account or item for late fees, so that you can easily track the amount of revenue you are deriving from late fees in your financial reports.

You can choose a specific tax rate or you can choose to use the account default (Xero) or the item default (QuickBooks).

The Grace Period for a late fee policy determines how many days overdue the invoice needs to be before a late fee is applied.

Typically 2-3 days will allow time for any payments to clear and transfer, and any bookkeeping to mark the invoices as paid in your accounting system. You may want to extend this time to give your customers longer to pay

If you need to skip weekends you can also switch from days to weekdays for your grace period, this way if you have payment processing delays during weekends you won't issue a late fee over a weekend.

💡 Pro tip: you can use the email reminders feature in Paidnice to send reminders during the grace period to warn your customer of the upcoming late fee.

Often a late fee policy will repeat every 7, 14 or 30 days as a way to increase the cost for overdue payments the longer they are overdue.

In Paidnice you can choose if your policy is repeating, and how many days to wait until repeating. The repeating starts from the time the first fee is charged, so if you have a grace period it will start after that grace period.

If you are using a pro-rata percentage calculation, the number of days since the last time the policy repeated will be used to determine the number of days to pro-rata.

This is the description on the invoice - you can include the penalty date using the special word #PenaltyDate, like in this example:

Once you have reviewed these settings you can save your policy and it will apply to your group. There a many other optional configurations you can use to get very specific late fee functionality, these are covered in the More Options section below.

To see what late fees are scheduled by your policy you can view the actions screen, the late fee will be scheduled to apply based on your configured grace period. For example you may see late fees pending like this:

If you don't see a late fee action pending on an invoice, you can use the 'Preview Policies' tool on the invoice page to determine which policies do and do not apply, and why:

In this example the policy has been set to start on the 29th of May and the invoice is due before then, so the policy doesn't apply.

You can click the 'preview' button to see what the late fee would be for the invoice:

And you can also force it to apply to the invoice by clicking the 'apply now' button.

If you want to test a real late fee you can click on a pending late fee action and then click 'action now' to run the late fee immediately (note: this will apply the late fee even in safe mode).

This can be useful for testing late fees, you can even create a small test invoice, made out to yourself or a test customer in your accounting system, back date the issue and due dates in the past so the invoice is overdue and then apply late fees to it using the action now button.

Paidnice can send your customer an email when a late fee is applied, and can include a copy of the new or updated invoice. This is enabled in the setting for the group under notifications:

You can select a template from the email templates library for the late fee email.

Once the main configuration is complete, you can also select special configuration on the More Options tab, you can select multiple options and then configure each one. In the example below an invoice reference and an starting invoice due date have been configured:

Each of the options will change the way the late fee policy works, below is a detailed summary of each one:

Apply only to invoices due from

Apply only to invoices due before

These options determine when to start and stop applying the policy, based on the due date of the invoices. A good example of when this is useful is when you are 'launching' a late fee, you may want to inform your customers that the late fee will apply from e.g 1st of June, and then you would have your policy apply for any invoices due from 1st June.

Minimum Due Amount

Maximum Due Amount

These options can ensure you do not charge the late fee on invoices that are too small or too large. For example a 1% late fee on a $10 invoice will be only 10c, it's probably not worth charging such a late fee!

Exclude Branding Themes

Use Branding Theme

These options relate only to Xero. You can determine which Branding theme to use when creating a new invoice as the late fee, and you can choose to only apply this late fee policy to some branding themes and not others.

Use Contacts Tax Rate

This is for Xero only. If selected the invoice late fee tax rate will be the same as the contact default tax rate, instead of chosen from the policy.

Penalty Due Date

This determines the due date for the late fee if it is issued as a new invoice. You can choose the same as the original due date, the penalty calculation date, or a week after the penalty is calculated.

Exclude invoice lines

These accounts (Xero) or items (QuickBooks) will be excluded when determining the total of the invoice for the percent or pro-rata calculations. If an invoice is completely excluded then no late fee is charged based on the amount.

Invoice Reference

This is the custom reference for the invoice in Xero or memo for the invoice in QuickBooks.

Action time

This determines when in the day the late fees are calculated. You may wish to set this to the very start or end of a day to allow time for any bookkeeping the day prior or during the day.

Use custom invoice numbers

This options is for QuickBooks only. By default QuickBooks will generate sequential invoice numbers 1001, 1002, 1003... etc. If you wish your late fees to have a different invoice sequence you can choose this option and the invoice numbers will be set to use the prefix: PN-L- followed by a sequence number.