Late Payment Fees — Complete User Guide — Two Accounts Web

Comprehensive guide for configuring, calculating, recording, and reporting late payment fees charged to customers on overdue invoices

Table of Contents

1. What Are Late Payment Fees?
2. Enabling the Tab via Customize Menu
3. System Account Setup
4. Enabling Late Fees on Sales Invoices
5. Field-by-Field Guide
6. Creating Late Payment Fees
   • Automatic Creation via Pending Late Fees
   • Manual Creation
7. Accounting Impact
   • GL Posting
   • Cash Basis Accounting
8. Reports
   • Late Payment Fees Listing
   • Customer Summary
   • Profit and Loss Statement
   • Cash Flow Statement
9. Sample Data and Report Output
10. Accounting Regulation Compliance

1. What Are Late Payment Fees?

A Late Payment Fee is an extra charge applied to a customer's overdue Sales Invoice. It compensates the business for the delayed payment and encourages timely settlement.

Key characteristics:

• Late fees are monthly charges calculated as a percentage of the outstanding invoice balance
• They are linked to a specific Sales Invoice and Customer
• Each late fee creates its own Accounts Receivable entry — increasing the amount the customer owes
• The fee is recognized as income in the Profit and Loss Statement under "Late Payment Fees"
• Multiple late fees can accrue on the same invoice over successive months

2. Enabling the Tab via Customize Menu

Late Payment Fees is a sub-tab of the Sales Invoices tab. To enable:

1. First ensure Sales Invoices is visible in the navigation bar
2. Then open Customize Menu and find "Late Payment Fees" in the list
3. Toggle to Visible and click Save

Once enabled, you will see:

• Late Payment Fees — the main listing showing all recorded late fees
• Pending Late Payment Fees — a batch processing view showing which invoices are eligible for new late fees

3. System Account Setup

Late payment fees use the following accounts for GL posting:

Navigate to Settings > Chart of Accounts to configure:

• Profit and Loss > Late Payment Fees — rename, set code, assign to a P&L group, or reposition

This account appears in the system only when at least one Late Payment Fee record exists. It uses the Operating Activities cash flow category.

4. Enabling Late Fees on Sales Invoices

Before late fees can be charged, each Sales Invoice must be configured to allow them:

1. Open a Sales Invoice
2. Check the Late Payment Fees checkbox in the invoice settings
3. The Charge Monthly % field appears — enter the monthly percentage (e.g., 2 for 2% per month)
4. Save the invoice

This setting is also available on Recurring Sales Invoices for automatically generated invoices.

5. Field-by-Field Guide

6. Creating Late Payment Fees

6.1 Automatic Creation via Pending Late Fees

The recommended approach is to use the Pending Late Payment Fees batch processor. This automatically identifies all eligible invoices and calculates the correct fee amounts.

1. Go to Late Payment Fees > Pending Late Payment Fees
2. The system displays all invoices that:
   • Have Late Payment Fees enabled and a Charge Monthly % set
   • Have a balance due greater than zero
   • Are not closed
   • Have not yet been charged for the current month
3. For each eligible invoice, the system computes:
   • Next fee date — either the day after the due date (for first fee) or one month after the last fee
   • Fee amount — outstanding balance × (monthly rate ÷ 100), rounded to the currency's decimal places
4. Select the invoices to charge and click the batch action button
5. The system creates a Late Payment Fee record for each selected invoice, pre-populated with:
   • Date = the computed fee date
   • Customer = the invoice's customer
   • Sales Invoice = the selected invoice
   • Amount = the calculated fee
   • Exchange Rate = from the original invoice or current rate
6. Each fee is saved and processed — creating GL entries automatically

Fee Calculation Formula

The system calculates the late payment fee using this method:

1. Start with the current unpaid balance of the invoice (including any previously charged late fees that remain unpaid)
2. Multiply the balance by the monthly percentage rate set on the invoice
3. Divide by 100 to convert the percentage to a decimal
4. Round the result using the customer's currency decimal places as configured in Settings > Currency (e.g., 2 decimals for BDT, USD; 0 for JPY; 3 for KWD)

Example (BDT — 2 decimal places):

Invoice Balance Due:     5,750.00 BDT
Monthly Charge Rate:     2%
Calculation:             5,750.00 × 2% = 115.00
Late Payment Fee:        115.00 BDT  (rounded to 2 decimal places)

After the fee is applied, the new balance becomes 5,750.00 + 115.00 = 5,865.00 BDT. The next month's fee is calculated on this new balance.

How the System Determines "Next Fee Date"

• First fee: The day after the invoice due date (earliest possible)
• Subsequent fees: One month after the most recent late fee date for that invoice
• Future dates skipped: If the computed fee date is in the future, the fee is not created until that date arrives
• Zero balance invoices: If the balance has been fully paid, no fee is calculated

6.2 Manual Creation

1. Go to Late Payment Fees > New Late Payment Fee
2. Select the Customer
3. Select the Sales Invoice (filtered by customer)
4. Enter the Amount
5. Verify the Exchange Rate (auto-populated for foreign currency customers)
6. Save

7. Accounting Impact

7.1 GL Posting

Each Late Payment Fee creates two GL transactions:

Entry 1 — Debit (increase) Accounts Receivable:
    Dr  Accounts Receivable (Customer)              Fee Amount
    (Increases the amount the customer owes by the fee amount)

Entry 2 — Credit (increase) Late Payment Fees Income:
        Cr  Profit and Loss — Late Payment Fees             Fee Amount
    (Recognizes the fee as income)

DR = CR: Fee Amount + (−Fee Amount) = 0 ✓

Key posting details:

• The AR entry is linked to the Customer and Sales Invoice for tracking in customer statements
• The income entry is posted to the Late Payment Fees P&L account (singleton)
• The income entry is marked as a balancing transaction
• If the customer has a foreign currency, the amounts are converted using the exchange rate at the fee date
• The fee increases the total Accounts Receivable balance — it is added to the outstanding invoice amount

7.2 Cash Basis Accounting

In cash basis accounting, the system reverses the late fee accrual. The cash basis adjustment creates:

Dr  Late Payment Fees Income (reverses income)
    Cr  Accounts Receivable (reverses receivable)

This ensures that late fee income is only recognized when the customer actually pays it,
rather than when it is charged (accrual basis).

8. Reports

8.1 Late Payment Fees Listing

The main Late Payment Fees page shows all recorded fees with the following columns:

• Date — the fee date
• Customer — customer name/code
• Sales Invoice — the invoice reference
• Amount — the fee amount (in the customer's currency)

The page has a pending count showing how many invoices are eligible for new fees.

8.2 Customer Summary

The Customer Summary report includes a Late Payment Fees column. This column shows the total late fees charged to each customer during the report period. It appears automatically when late fee entries exist.

8.3 Profit and Loss Statement

The Profit and Loss Statement shows late payment fees as a line item under Income. The total represents all late fees charged during the reporting period. In the Accrual method, this includes all fees posted regardless of whether they have been paid. In the Cash method, it only includes fees that have been paid by the customer.

8.4 Cash Flow Statement

Late payment fees appear in the Cash Flow Statement as follows:

• Direct Method: Late fees are included in operating activities when the customer pays them. The late fee is part of the total cash received from the customer.
• Indirect Method: The late fee income is included in Net Profit. Since it affects AR (working capital), it flows through the "Accounts Receivable" working capital adjustment automatically.

9. Sample Data and Report Output

Setup

Fee Calculation

Invoice SI-001:
  Issue Date:    15-Mar-2026
  Due Date:      14-Apr-2026
  Balance Due:   5,750.00 BDT
  Monthly Rate:  2%

  First fee date:    15-Apr-2026 (day after due date)
  First fee amount:  5,750.00 × 2% = 115.00 BDT

After first fee:
  New balance:   5,750.00 + 115.00 = 5,865.00 BDT

  Second fee date:   15-May-2026 (one month after first fee)
  Second fee amount: 5,865.00 × 2% = 117.30 BDT

After second fee:
  New balance:   5,865.00 + 117.30 = 5,982.30 BDT

Late Payment Fee LPF-001 (First Month)

GL Transactions Created

Entry 1 — Dr Accounts Receivable (ABC Retail Ltd / SI-001)    115.00
Entry 2 — Cr Late Payment Fees (P&L Income)                    115.00

Verification:
    Total Debits:   115.00
    Total Credits:  115.00
    DR = CR: 115.00 − 115.00 = 0.00 ✓

Late Payment Fee LPF-002 (Second Month)

GL Transactions Created

Entry 1 — Dr Accounts Receivable (ABC Retail Ltd / SI-001)    117.30
Entry 2 — Cr Late Payment Fees (P&L Income)                    117.30

Verification:
    Total Debits:   117.30
    Total Credits:  117.30
    DR = CR: 117.30 − 117.30 = 0.00 ✓

Cumulative Impact

Customer Summary Impact

Verification: 0.00 + 5,750.00 + 232.30 = 5,982.30 ✓

DR = CR Verification Summary

LPF-001 (15-Apr-2026):
    Dr  Accounts Receivable      115.00
        Cr  Late Payment Fees              115.00
    DR = CR: 115.00 − 115.00 = 0.00 ✓

LPF-002 (15-May-2026):
    Dr  Accounts Receivable      117.30
        Cr  Late Payment Fees              117.30
    DR = CR: 117.30 − 117.30 = 0.00 ✓

Total across both fees:
    Total AR increase:   115.00 + 117.30 = 232.30
    Total income:        115.00 + 117.30 = 232.30
    DR = CR: 232.30 − 232.30 = 0.00 ✓

10. Accounting Regulation Compliance

10.1 IFRS 15 — Revenue from Contracts with Customers

Requirement (§51): Variable consideration (including late payment fees) is estimated and included in the transaction price. Changes in variable consideration are recognized as an adjustment to revenue.

How this system complies: Late payment fees are recognized as separate income when charged, not as an adjustment to the original sale revenue. This is appropriate when the late fee represents a separate performance obligation (the continued extension of credit) rather than a variable price adjustment. The system records the fee in a dedicated P&L account, keeping it distinguishable from product/service revenue.

10.2 IFRS 9 — Financial Instruments

Requirement (§5.1.1): Financial assets are measured at amortized cost using the effective interest method. Late payment fees are a component of the effective interest rate for receivables.

How this system complies: The late fee is added to the Accounts Receivable balance, increasing the total amount the customer must pay. This aligns with the effective interest rate concept where the receivable balance includes all charges that the customer is contractually obligated to pay.

10.3 IAS 1 — Presentation of Financial Statements

Requirement (§82): Income and expense must be presented separately on the face of the Profit and Loss Statement.

How this system complies: Late payment fees appear as a separate line item under Income on the P&L Statement. The Late Payment Fees P&L account is registered as a system account in the Income group and appears distinctly from "Sales Revenue" or other income categories.

10.4 IAS 7 — Statement of Cash Flows

Requirement (§16): Cash flows from operating activities include cash receipts from customers.

How this system complies: Late payment fees are classified under Operating Activities (the P&L account's cash flow category). When the customer pays the invoice — including late fees — the total payment flows through operating activities. The accrual reversal in cash-basis accounting ensures late fee income is only recognized when collected.

10.5 DR = CR Verification

Each Late Payment Fee creates two entries:
    1. Dr Accounts Receivable (increase asset)
    2. Cr Late Payment Fees (increase income)

    Debit  = Fee Amount
    Credit = Fee Amount
    DR = CR: Fee − Fee = 0.00 ✓

For the sample data:
    LPF-001: 115.00 − 115.00 = 0.00 ✓
    LPF-002: 117.30 − 117.30 = 0.00 ✓
    Cumulative: 232.30 − 232.30 = 0.00 ✓

10.6 Relevant but Not Applicable

• IFRS 16 (Leases): Late payment fees relate to sales invoices, not lease arrangements.
• IAS 37 (Provisions): Late fees are income, not provisions. They are recognized when charged, not when estimated.
• IAS 2 (Inventories): Late fees are financial charges, not inventory costs.

End of Late Payment Fees Guide