Late Payment of Commercial Debts

Excuse 7: Charges are optional, you don't have to charge them

Applicability

All, although this generally only makes sense for the first penalty

Underlying reasons

Customer understand charges apply, but believes they are optional
Penalty charges are no different to any other aspect of the contract - they are not a special case They are as optional as charging for goods, or services, or anything else We are a business, and charge what is agreed in the contract Not charging does not mean the penalties go away anyway - they hang around for at least 6 years
Customer does not believe they have an obligation to adhere to the agreement they have made
Whether we charge penalties or not 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 credit of the first penalty works well, as long as the customer is educated and understand the next time they will not get a credit
Explain that the liability is not optional - it is a statutory part of all contracts. Pursuing any debt is optional and penalties are not a special case, but not pursuing does not make the debt go away (until 6 years pass). Explain that we have this quaint policy of charging what was agreed as that is what is in the interests of the shareholders.

It is worth noting that once a debt exists it is possible for the parties to agree a way to handle that debt after it is created, and that agreement may allow for not charging a penalty. This cannot be agreed in advance or made part of the ongoing contract - it can only be agreed once a debt is created. It cannot be a standing agreement or ongoing agreement not to charge. In effect it would have to be agreed separately for each debt after it is created. It is also an issue that any such agreement would only be enforcable by the customer (i.e. stopping you charge the penalties later anyway) if it is a contractual agreement. This means the customer must give something in return for not charging the penalies or allowing longer to pay or whatever. Of course this is no different to any other contract term - we could, after the invoice, agree we will not charge for last months service. We don't. We are a business!

Of course you could say "We'll agree not to charge late payment penalties in future if you agree not to pay late in future" which kind of brings home the point that the customer broke their agreement in the first place. We have used this and got some confused replies.