Table of Contents

Back Charge: What it is, How it Works, Example

By

澳洲幸运5官方开奖结果体彩网:Mitchell Grant

Updated September 28, 2024

Reviewed by

David Kindness

Fact checked by

Vikki Velasquez

What Is a Back Charge?

A back charge is a billing made to collect an expense incurred in a previous billing period. It can be due to lack of payment by the recipient of services or goods, an adjustment due to an error, or to collect an expense t🌄h♉at was not billable until a later period due to timing issues.

A vendor ca🧜n, at its discretion, add a late fee or other addit𓃲ional charges in conjunction with a back charge that is due to an unpaid bill.

Key Takeaways

A backcharge is a bill made to collect an expense incurred in a previous billing period.
Backcharges may be made due to nonpayment, clerical errors, or to collect an expense that was not billable until a later period.
Back charges are common in the construction industries, where unexpected delays and errors can result in cost overruns.

Understanding Back Charges

Back charges are most commonly seen in industries when accidentals occur, such as construction, credit cards, and manufacturing. Because of the nature of these industries and the tendency for many things to go wrong during the day-to-day business, a back charge is issued either in real-time or further down the 澳洲幸运5官方开奖结果体彩网:billing cycle.

Credit card companies, banks, and other lenders are notorious for not notifying their customers of a back charge. This is due to the fact that they are able to make additio💞nal money off the interest of those back charges. Since interest accrues daily, this can amount to a sizeable sum.

Important

When issuing a back charge, it is considered ethiꦆcally correct to let the c✱lient know as soon as the charge is incurred.

When possible, it is best to avoid having to back charge for products or services. Because back charges may be unexpected by customers and can be confused with billing errors, they often take longer to collect. In general, tไhe more promptly a company can bill a customer, the higher the probability of collecting the billable am🍌ount in a timely manner.

Example of a Back Charge

Assume George has a business selling applesauce, and XYZ grocery purchases two boxes of George's applesauce every month. However, XYZ recently came under new management and forgot to pay George's invoice for September applesauce. George isn't aware and delivers the September order of applesauce anyway.

On the invoice for the October applesauce, George includes a back charge for the still outstanding September applesauce charges. XYZ may simply accept the charge, 🦄but more often than not a back charge brings unwanted anger⁠—sometimes even litigation⁠—if it is not discussed up front. It is also for this purpose that George hopefully made someone from XYZ sign for the delivery, so he could show he delivered it to XYZ as he always had.

How Do You Manage Back Charges in Construction?

In construction, back charges are assessed to a subcontractor for defective work, damage, or clean-up costs. Contrary to popular perception, back charges are not paid as the work is in progress. Instead, the value of each contract or subcontract is raised or lowered by the cost of remedying the damage or defective work. A subcontractor can usually fix these defaults themselves if they know about them, which can be both faster and cheaper than engaging a third party to fix their work.

Can You Dispute Back Charges in Construction?

Unlike mechanic liens, back charges are governed by contract law rather than statute. This means that subcontractors can negotiate for terms that prevent unfair back charges or unreasonable markups.

How Can You Avoid Back Charges?

Back charges can quickly eat into the profit margins of a subcontractor, especially if they were unaware of the defects in their work. In order to limit back charges, subcontractors can negotiate for terms that prevent unfair back charges, and for the opportunity to cure any defects in their work.

The Bottom Line

Back charges are charges made to collect an expense that was incurred during a previous billing period. In retail, back charges may be assessed for unpaid bills or to make up for billing errors. Back charges are also used in construction industries if a contractor or supplier fails to fulfill their obligations.

Article Sources

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