Late payments are undoubtedly an annoyance, but they also present a significant threat to Singapore businesses, particularly SMEs (small-to-medium enterprises).
Based on research from Sage, 39% of SMEs report being impacted by late payments, while 52% are currently experiencing (or foresee they will experience) operational challenges due to overdue invoices.
While late payment culture isn’t as entrenched in Singapore as it is in Western countries, as SMEs expand across borders, they increasingly feel the effects. In Australia, for example, more than half of all invoices are paid late, with 23 days being the average delay.
Whether you’re one of the 39% of Singapore businesses who have invoices outstanding or you’re planning to expand into other markets where late payments are commonplace, this article will offer valuable solutions.
We’ll explore how charging late fees can motivate slow-moving clients to act and what you need to know before you begin adding fees to your invoices.
Please note that the information found in this blog serves to inform but does not constitute legal advice. For information specific to your industry, we recommend contacting a legal professional.
Yes, businesses in Singapore can charge either a fixed late fee or interest on overdue invoices, and there are no standard payment terms under Singapore law.
With no legal guidelines in place around how much to charge in late fees, we’ll offer you advice based on best practices later in this article.
But first, it’s essential to clarify that although Singaporean businesses are legally entitled to charge fees on overdue invoices, those fees aren’t enforceable unless they meet certain criteria.
Important: Clients with overdue balances are only obligated to pay late fees if they have agreed to your payment terms.
So, before you make any changes to your terms, be sure to provide them to your clients and gain written or digital confirmation that they’ve been accepted.
As the Singapore government leaves it up to businesses to manage their late fees, you can theoretically set your own terms as you see fit.
That being said, we suggest following best practices in order to maintain a strong reputation and retain the relationships you’ve built with your clients.
Whether you’re a freelancer, SME or national organisation, you should familiarise yourself with best practices surrounding:
Not only is it best practice to inform your clients about your payment terms, but it also ensures that the fees are enforceable should you have to pursue payment in court.
Tip: If you decide to start charging late fees, create a clause in your contract surrounding payment terms, and ensure new clients sign your contract during the onboarding process.
When amending or introducing payment terms with existing clients, you’ll need to share your new terms and have them agreed to either digitally or in writing.
Read our advice, including examples on this.
For any business in Singapore, establishing a culture of respect with your clients is essential. Before you begin charging late fees, it’s considered best practice to get in touch with your client to chase payment, particularly if you’ll be charging a late fee for the first time.
Tip: Once established, a fixed penalty late fee can be applied the day an invoice becomes overdue. However, if charging interest, it’s best practice to allow a grace period of 30 days of non-payment.
While overdue invoices may show that a client disregards your business, you should maintain civility when deciding whether or not to charge a late fee.
Assuming that you value their business and want to maintain a beneficial working relationship, it’s best practice to waive the first late fee if it is challenged.
Providing your service doesn’t fall within the COVID-19 (Temporary Measures) Act, Singapore businesses can determine their own late fees.
As an SME in Singapore, you can charge a “reasonable” fixed penalty fee or add interest to overdue balances.
Tip: Keep in mind that these fees are only to serve as encouragement for prompt payment, not to generate profit.
When determining what you will charge, either as an interest rate or a fixed fee, aim for a healthy middle ground that deters late payments without being exploitative. Here are some recommendations to get you started:
For balances that fall below SGD $800, it’s rarely worth charging interest. Instead, for low invoice balances, we recommend setting a fixed late payment fee of approximately SGD $15-40 per invoice.
For balances of SGD $800+, you can encourage prompt payment by establishing interest-based fees. In Singapore, we recommend capping your interest at a rate of 10% per annum.
In order to work out how much interest to charge on a daily or monthly level, you can use an online calculator or formula, but working out the percentage and what it equates to on each invoice is a long and drawn-out process.
Optional Tip: You can use a tool like Paidnice to do this for you.
The manual nature of charging late fees in this way is why many SMEs in Singapore don’t routinely charge late fees. But what if you could automate the entire process, saving time and money?
Late fees may be a proven way to encourage prompt payment of invoices, but they’re also notoriously difficult to manage. Overworked admin departments and accounts receivable teams rarely have the capacity to take on this extra work.
As one of Singapore’s most popular accounting software systems, Xero notably lacks the ability to automate late fees. Instead, Xero users have to manually calculate and add each charge manually - until now.
Paidnice is a software plug-in that seamlessly integrates with your Xero system to automate the entire late fee process. Paidnice offers you full control, with the flexibility to set fixed or interest-based fees and to categorise clients based on payment terms. On average, Paidnice users get paid 40% quicker than those who use Xero alone. This is how it works:
Step 1. Work out the type of late fee you'll charge
Decide whether you’ll charge a fixed or interest-based late fee and at what rate you will set it at.
Step 2. Setup your late fee policy
Next, create a late payment policy and send it to your customers for them to agree to. For help with writing your policy, see our examples.
Step 3. Get started!
Then, implement your late fee policy by manually implementing your fee on overdue invoices each time they go overdue.
Optional: Automate your late fees with Paidnice!
Paidnice is a Xero app that will automatically detect when your invoices go overdue, and issue your customers a penalty, either a late fee or an interest charge, and either add this to your existing invoice as a line item, or issue a new invoice as a penalty.
Want to see Paidnice in action? Watch our tutorial video and learn more about getting started with Paidnice today.
Please note that the information found in this blog serves to inform but does not constitute legal advice. For information specific to your industry, we recommend contacting a legal professional.
