Late Payment of Commercial Debts

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Excuse 3: £40 is extortionate

Applicability

All, although this generally only makes sense for the first penalty or for a penalty relating to small value invoice

Underlying reasons

Customer understands penalties apply but feels £40 is not reasonable
The penalty amount is dictated by statute, and there is interest as well so it is not relevant whether it is reasonable or not. The very fact that the level of penalty is causing such offence means it is probably the right level as it is meant to be a deterrent. e.g. if the penalty was £1, then it would be ignored by the customer and not worth collecting by the supplier and so not do the job. We have found that we have one person in accounts who's full time job is chasing late payment, even now. Whilst we collect many thousands of pounds in penalties over the year, this does not quite cover their salary, so £40 probably isn't reasonable - a reasonable amount would be a higher value.
Customer does not believe they have an obligation to adhere to the agreement they have made
How much we charge for penalties should not be an issue - it only applies if the customer breaks the contract and pays late. Customer probably has a fundamental misunderstanding that they don't have to do what was agreed, but that it is fair to do whatever they can get away with and feels aggrieved that they failed to get away with paying late when they usually do (with other suppliers).

Resolution

A policy of crediting the first charge works will in this case. Customer will realise that the penalties are not an insignificant amount and that paying on time is important.
Failing that - customer should pay, and will not do it again