Grace period definition

A grace period is the amount of time allowed before a payable must be paid. A payment made within a grace period is not subject to any penalties or late fees by the seller. Grace periods are useful for the collection staff, which does not engage in any collection activities during this period of time. However, some customers can take advantage of the grace period, paying as close to the end of the period as possible in order to retain use of the associated cash.

A credit card issuer allows a grace period for the amounts due on credit cards without charging any interest, but only if the credit card holder has a paid-up account with no balance carried forward from the previous month. Thus, the grace period is lost if the card holder does not completely pay off the balance in the preceding period.

Grace periods are also commonly applied to the payments due on mortgages and insurance contracts.

Related Courses

Effective Collections 
Payables Management