Example of Back Charge Scenario

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 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.

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.