Back charge definition
/What is a Back Charge?
A back charge is an invoice sent to a customer, billing for an expense incurred by the seller in a prior period. A back charge is issued for one of the following reasons:
An error was discovered in the original billing, and is now being corrected;
The seller received a late billing from a supplier, which it is passing through to the customer; or
The original sales agreement with the customer mandated a late billing.
Back charges are to be avoided, since they are more difficult to collect from customers. Customers expect to receive supplier invoices sooner, and so will not expect a back charge to arrive at a later date. Given the difficulty of collection, some businesses elect to write off back charges without ever sending an invoice.
Back Charge Best Practices
It can be quite difficult to collect on back charges to customers. Here are several ways to do so:
Set up a contractual obligation. Include a clause in your contract with the customer, stating that back charges may arise from time to time, and that the customer acknowledges its liability for these items.
Maintain credit card information. Require the customer to provide you with its credit card information, so that you can charge the amount on a back charge directly to the card.
Require ACH debit authorization. Require the customer to agree to an ACH debit transaction, where you can charge the customer’s bank account for the amount of the back charge.