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Back Charge

DEFINITION of ‘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 that was not billable until a later period due to timing issues. A vendor can, at its discretion, add a late fee or other additional charges in conjunction with a back charge that is due to an unpaid bill.

BREAKING DOWN ‘Back Charge’

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, the more promptly a company can bill a customer, the higher the probability of collecting the amount billed in a timely manner.

Example of a Back Charge

For example, George has a business selling applesauce and XYZ corner grocery purchases two boxes of George’s applesauce every month. XYZ corner grocery is under new management and forgot to pay George’s invoice for September applesauce. George still delivers October applesauce anyway. On the invoice for the October applesauce, George includes a back charge for the still outstanding September applesauce charges.

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Jackson Neo has written on money, investing and risk management for more than a decade. His current interests are cryptocurrencies, fintech, and micro-finance.