This contract tip is about late payment charges in a contract. These provisions say something like, “If Buyer fails to pay any amounts when due, Buyer shall pay to Seller 1% monthly interest on unpaid amounts.”
Here are 4 things to know about them:
1. Harsh provisions create friction - Every customer I've represented deletes them as a matter of course. Vendors who want frictionless contract negotiations should consider adding a grace period before these charges apply.
2. Even if in the contract, most vendors do not collect - I've discovered that most vendors do not collect these in the normal course. They do not want to aggravate the customer over a small amount. There is a risk to this approach. Vendors may face waiver claims if they try to start collecting later.
3. Late payment charges add up if there is a dispute - Late payment charges help compensate the vendor forced to cover its cash flow. This payment is important if the nonpayment goes on a long time.
4. Watch for what payments are included - Some vendors include all amounts due under the contract, not just the product price. Those amounts could include damages claims. Customers may want to make it mutual so the vendor has to pay too if it fails to pay what it owes the customer.
What else do you find works (other than spiders of course)?
