Backpayments have various meanings in the financial industry and should not be confused with chargebacks. They can refer to unpaid debits, overdue charges, corrective fees, and even consumer-initiated charges. Outstanding charges can affect credit standing and must be paid before closing an account.
The financial industry uses the term “backpayments” in many different ways. It is also not to be confused with a chargeback, where funds are returned to a consumer’s credit card or bank account on the orders of the consumer’s financial institution.
In the first sense, arrears are debits that have been made to a customer’s account, but have not been paid. A supplier of goods or services may require full payment of past due and ongoing charges to bring a customer’s account current. Overdue charges will show on every invoice until they’re paid, and may accrue interest and fees if they go unpaid for too long. Having outstanding overdue charges on an account usually reflects badly on a consumer’s credit standing, even if it can show that the charges weren’t paid for a good reason, such as an ongoing dispute over whether or not the charges were fair.
Until an account is paid, it usually cannot be closed. If a consumer attempts to close an account and there are outstanding charges, the full amount will be due in full before the company closes the account. In some cases, consumers can negotiate a reduced rate for unpaid debt, with the understanding that their debt will be paid off and the account closed.
In other cases, the consumer’s account is pending, but additional fees are charged to correct deficiencies in the account. For example, a utility company might realize that it was charging the customer an incorrect rate for service and generate back charges designed to correct the months during which the consumer incorrectly received a lower rate. Overdue charges can also be assessed when a customer pays a flat fee for something and the fee isn’t calculated correctly, such as when a shipping company realizes that the flat fee they paid for a package wasn’t enough to cover the cost of transportation .
Consumers can also initiate back charges, billing suppliers if they need to take corrective action to fix something a supplier damaged or failed to do right. For example, if a contractor damages someone’s hardwood floor, the consumer could repair the floor and invoice the contractor for return costs if he can prove that the damage was caused by the contractor and that the contractor negligently failed to protect the floor. Firms can also issue cross-bills, such as when an architectural firm bills an engineering firm because the engineering drawings for a new project are incorrect and need to be corrected.
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