Are Late Payment Fees Enforceable?

It's Monday and the parent owes you $180 for the coming week of child care.

She tells you she can't pay you because a) she has an unexpected car repair bill, b) her husband lost her job, c) she forgot or d) any other reason.

Your contract says parents must pay a late payment fee of a) $5 a day, b) $10 a day or c) $25 a day.

The parent doesn't pay you on Tuesday and continues to offer excuses as to why she can't pay. She finally pays you $180 the following Monday, and she pays you $180 for the coming week. But, she doesn't pay you the accumulated late payment fees of a) $35, b) $70, or c) $175.

What do you do? If you take her to small claims court for the late payment fees, will you win?

Your contract

It's reasonable to have a late payment fee spelled out in your contract. There needs to be a consequence for parents who do not pay you on time.

Your late payment fee can be whatever you want. If the parent doesn't pay you on Monday you can insist that they pay you by Tuesday morning or you will refuse to provide care on Tuesday.

You don't have to enforce your fee each time a parent pays late. It's common for providers to forgive parents who rarely pay late. However, if you never enforce a late payment fee I'd take it out of your contract. It's better not to have a rule than to have a rule you don't ever enforce.

Enforcing late payment fees in court

Providers who take parents to small claims court to enforce their contract sometimes also ask to be paid for overdue late payment fees. However, some states have rules that limit how much you can recover in late payment fees. Contact your local small claims court to find out what the rules are about collecting late payment fees.

Let's say a parent left owing you $180 for her last week of care. Your late payment fee is $25 a day. By the time your case gets to court the late payment fee has risen to $750. Although you should win $180 for the week you provided child care, it's highly unlikely you will win the $750 because it greatly exceeds your original claim.

The fact that you might not win late payment fees in court is not a reason not to include such fees in your contract.

You can set up a payment plan with parents if you wish. If you do so, put it in writing and have the parents sign your new agreement: "Parent owes $140 in late payment fees and agrees to pay $20 a week, due on Monday, until it is paid in full."

Bank fees

If a parent bounces a check and the bank charges you a $25 fee, it is reasonable to pass this on to the parent. You can also charge the parent a separate fee of your own ($25?) for bounced checks because of the inconvenience to you. If the bounced check causes other checks of yours to bounce, it will be hard to collect these fees from the parent.

If you insist upon on-time payments, enforce a late payment fee and refuse to provide child care after a short period of time has passed after non-payment - you can avoid going to court and limit your losses.

How do you handle this situation?

Tom Copeland - www.tomcopelandblog.com

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