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Set up and apply automatic late fees to invoices

Learn how to set up and add late fees to overdue invoices in QuickBooks Online.

Instead of manually tracking late fees for overdue invoices, QuickBooks can apply them automatically. You set the fee amount and when to apply the fee after the due date. The charge can be a flat fee or a percentage of the overall invoice amount. QuickBooks adds fees based on your settings.

Or, learn how to manually add surcarges and service fees to invoices.

What are automatic late fees?

Some small businesses apply late fees or finance charges on overdue invoices to encourage their customers to pay on time. QuickBooks Online can automatically calculate late fees. And add them to overdue invoices as a line below Product / Service.

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The default settings apply to all customer invoices; however, you can also customize these fees for individual customers.

How do I set up late fees?

To set up your default automatic late fees in QuickBooks Online you must be logged in as the Master Administrator or Company Administrator.  Go to:

  1. Select Settings ⚙️, then Account and Settings.
  2. From the Menu ☰, select Sales.
  3. Choose Late fees. Check the box to turn on late fees.

You can specify the fee type, amount, grace period, and how it will show up on the invoice.

There are three different fee types to choose from:

Fee Type* Description Example
Percent A percentage of the total invoice amount 10%
Flat Fee A specified amount not dependent on the invoice total $20
Flat fee and percent A one time specified amount applied when the invoice becomes overdue. Plus a percentage of the total invoice amount applied after that if it remains overdue. $20 + 10%

$20 is applied when the invoice become overdue. The 10% fee is applied if the invoice remains overdue.

*All fee types are applied dependent upon the chosen frequency

What is a grace period?

The grace period is the amount of time you give your customers to pay without incurring late fees or interest.  A grace period can be used in addition to your net terms.

Can I edit the name for how a late fee appears on my invoice?

You can customize how your late fees appear on your invoices when setting up your late fee preferences. Once the preferences are saved, you can edit the name for how a late fee appears on your invoice. Here's how:

  1.  Select Settings ⚙on the toolbar, then choose Products and Services.
  2.  Find the associated Product/Service item and select Edit.
Note
  • The late fee item must be active in your products and services list in order for late fees to be applied.
  • If you were previously adding late fees manually, do not merge the original late fee product or service with the late fee item that is created when turning on the Automatic Late Fee feature.

How do I set different late fee rules for certain customers?

To set a custom fee for an individual customer:

  1. From the left menu, select Sales or Invoicing.
  2. Select Customers.
  3. Choose the customer you would like to customize. Then select Late Fees from the table.  You have two ways to customize:

Waive late fees - This will prevent QuickBooks Online from ever calculating and applying late fees on an overdue invoice for this customer.

Override the default late fee settings - This will create a new set of rules that apply only to the chosen customer.  You can have different late fee rules for different customers.

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What income account are late fees tied to?

When you turn on late fees, QuickBooks Online automatically creates an income account to track the amount of fees you’ve collected for reporting purposes. The account is set up as an “Other Income” account type and is named “Late fee income”.

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If you would like to edit or change how this account appears in your chart of accounts, here's how:

  1.  From the left menu, select Accounting and choose Chart of Accounts.
  2. Locate the Late Fees account.
  3. In the Action column, select the down arrow. Then choose Edit.

From here, you can change the account type, detail type, name and description associated with your late fees.

There may be limits on the amount and type of fees you may charge your customers. You should confirm the requirements in your jurisdiction and how they relate to you.

Settings will not be automatically brought over from desktop. Please set them up in QuickBooks Online:

  1. Select Settings ⚙️, then Account and Settings.
  2. Select Sales.
  3. Select late fees.

QuickBooks Online will automatically calculate late fees beginning at 12 am PST. The late fee should be applied sometime before 7 am PST.

There are several scenarios when you may not see automatic late fees apply to an invoice:

  • Your invoice was overdue prior to turning on the late fees setting.
  • QuickBooks Online only applies late fees to invoices up to six months overdue.
  • Your Invoice is still unpaid but in a closed period.

Once the late fees setting is turned on, fees will be calculated on invoices that become overdue (for the first time) the following day.

QuickBooks Online does not retroactively apply late fees. That means invoices that were overdue prior to turning on the setting will not be candidates for automatic calculation.  To apply late fees to these invoices, you can manually add a late fee as a product/service line.

Late fees will automatically be added to overdue invoices for six months or until paid.

Note
  • The late fee item must be active in your products and services list in order for late fees to be applied.
  • If you were previously adding late fees manually, do not merge the original late fee product or service with the late fee item that is created when turning on the Automatic Late Fee feature.

We recommend that you follow up with a new invoice in the new period for the late fee amount.

No, QuickBooks Online will not automatically email an invoice to customers on your behalf. However, you can manually send an updated invoice through email within QuickBooks Online.

Additionally, your customers that view invoices online, will see an updated version which includes the newly applied late fees.

Yes. To remove a late fee from an invoice, select the trash can icon that is located on the line of the Product/Service item.

Yes. You can edit the name for how a late fee appears on your invoice by following these steps.

  1. Select Settings ⚙on the toolbar, then choose Products and Services.
  2. Go to the associated Product/Service item
  3. Select Edit.

When you turn on late fees QuickBooks Online automatically creates an income account to track the amount of fees you’ve collected for reporting purposes. The account is set up as an “Other Income” account type and is named “Late fee”.

If you would like to edit or change how this account appears in your chart of accounts, you can do so by following these steps.

  1. From the left menu, select Accounting and choose Chart of Accounts.
  2. Locate the Late Fees account.
  3. From the Action column drop-down menu, select Edit.
  4. You can change the account type, detail type, name and description associated with your late fees.

You can change your default settings by following these steps.

  1. Select Settings ⚙️, then Account and Settings.
  2. Select Sales.
  3. Select late fees.

Upon saving your new late fees default setting two things will happen:

  1. All invoices that become overdue moving forward will be calculated based on the new default rule.
  2. Late fees previously applied to overdue invoices will remain the same.  If the invoice remains unpaid, any additional late fees to be added will be calculated based on the new default setting.

Late fees are calculated based on the balance due. This will be inclusive of sales tax, shipping and discounts.

The Product/Service items are added up and the discount applies to either that amount or the amount after taxes. That depends on the settings for the invoice.

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