What effect do late fees typically have on customers?

Late fees are designed to create a financial consequence for missing payment deadlines, which can effectively motivate customers to prioritize their payments. By incurring a fee for late payments, customers may feel a heightened sense of urgency to pay their outstanding balances in order to avoid additional costs. This urgency can encourage prompt payment behaviors, as customers may wish to avoid further penalties and restore their accounts to good standing.

While late fees may not necessarily lead to increased purchases or eliminate the need for payment reminders, their primary purpose is to incentivize timely payments. This dynamic underscores the importance of managing accounts receivable and ensuring consistent cash flow for organizations.