Consequences of Delayed Repayments
When utilizing Private Funding or a Cheque Basis arrangement, adhering to the agreed-upon repayment schedule is critical. Delays in honoring these commitments disrupt the capital cycle and introduce operational risk. To mitigate this, standard late payment penalties are enforced when scheduled payments are not met by the due date.
These late payment penalties generally range from 2% to 5% per month (or part thereof) on the overdue amount. The specific penalty rate applicable to your 2% to 5% bracket is clearly defined in your initial funding agreement.
Why the 2% to 5% Penalty Exists
In the context of private funding, capital liquidity is paramount. The 2% to 5% late payment penalty serves a dual purpose: first, it compensates the funding provider for the administrative burden and opportunity cost associated with the delayed capital; second, it acts as a strong deterrent against financial delinquency, encouraging strict adherence to the cheque basis contract.
We strongly advise all clients to maintain open communication. If you anticipate a challenge in meeting a scheduled cheque basis repayment, contacting us prior to the due date is always preferable to simply absorbing the 2% to 5% late payment penalties. Proactive communication can sometimes lead to temporary accommodations, although the penalty structure remains standard policy.