GenerateMyInvoice

How to Charge Late Fees on Invoices (and How Much)

A late fee only works if it was agreed before the invoice was late. Here's how to set one up properly, and what the law allows.

By HafizPublished 3 min read
Overdue invoice with a late fee line added in red

Late fees have one job: making "pay on time" the cheaper option. They work best as a quiet line in your terms that rarely needs to be enforced. They work worst when they appear for the first time on an overdue invoice.

Rule one: agree it in advance

A late fee is part of your contract with the customer. It should appear in:

  1. Your quote, proposal or contract, before work starts
  2. Every invoice, in the payment terms

A fee that shows up for the first time after the invoice is overdue is hard to enforce, and it tends to sour the relationship without getting you paid faster.

Two ways to charge

Flat fee: a fixed amount once the invoice is late, such as $25 or 5% of the invoice. Simple, and effective for small invoices.

Interest: a percentage charged per month (or per year, calculated daily) on the overdue balance. Scales with the amount and the delay. 1–1.5% per month is the most common range for US businesses.

Some businesses do both: a flat fee at 30 days late, then monthly interest.

Wording you can use

Payment is due within 30 days. Balances unpaid after the due date will incur a late fee of 1.5% per month (18% per year) until paid.

Invoices unpaid 15 days after the due date are subject to a one-time late fee of $35.

Payment due within 14 days. We reserve the right to charge interest and compensation on late payments under the Late Payment of Commercial Debts (Interest) Act 1998. (UK B2B)

Put your version in the Terms & conditions box in the generator, and it prints on every invoice.

How to calculate interest

Monthly interest on $2,000 at 1.5% per month, 45 days late:

  • Daily rate: 1.5% × 12 ÷ 365 = 0.0493% per day
  • 45 days × 0.0493% × $2,000 = $44.38

Or more simply, most small businesses charge 1.5% of the balance for each full month late: one month late on $2,000 = $30.

United States

There's no single national rule. Your ability to charge late fees depends on your contract and your state's laws, including usury laws that cap interest rates. Limits vary widely, and some states have specific rules for consumer transactions. In practice:

  • Charges have to be agreed in advance to be enforceable.
  • Keep your rate reasonable. 1–1.5% per month is widely used, but check your state's cap.
  • Consumer contracts are more tightly regulated than business-to-business ones.

For anything beyond routine fees, a short consultation with a local lawyer is worth it.

United Kingdom

For business-to-business contracts, the Late Payment of Commercial Debts (Interest) Act 1998 gives you a statutory right to claim interest at 8% above the Bank of England base rate plus fixed compensation of £40, £70 or £100 depending on the size of the debt, even if your contract says nothing about late payment. You can set a different contractual rate instead, as long as it's a substantial remedy. Full details: UK late payment interest.

The Act doesn't apply to consumer sales. For consumers, any late charge must be in your terms and be fair under the Consumer Rights Act 2015.

European Union

The Late Payment Directive gives businesses a right to interest of at least 8 percentage points above the European Central Bank reference rate on late B2B payments, plus a minimum of €40 in compensation for recovery costs. Each country implements it slightly differently.

Add your late fee terms once, and they appear on every invoice you make.

Open the invoice generator

When a late fee backfires

  • Big, slow corporate clients. Their AP systems may simply refuse to pay the fee, and you'll spend more effort arguing than you gain. Negotiate shorter terms or deposits instead.
  • A good client who's late once. Waiving the fee, visibly ("I've waived the late fee this time"), often earns more goodwill than the fee is worth.
  • Unclear terms. If your terms were vague, charging a fee invites a dispute over the whole invoice.

Applying the fee

When an invoice goes late:

  1. Send a reminder that mentions the fee will apply after a certain date.
  2. If it's still unpaid, issue a new invoice for the late fee referencing the original, or add it to a statement. Don't alter the original invoice.
  3. Keep a note of how you calculated it.

The full collection process is in what to do about an unpaid invoice.

Hafiz

Hafiz runs GenerateMyInvoice and writes its guides on invoicing, payment terms and getting paid on time.

This guide is general information. For decisions about tax or legal action, check with an accountant or lawyer where you work.

Keep reading

Calendar with a circled due date beside an invoice showing Net 30 terms

Invoice Payment Terms: Examples, Meanings and Which to Use

Net 30, Net 15, due on receipt, 2/10 Net 30, EOM and more explained with examples, plus how to choose payment terms that get you paid on time.

Getting paid, 4 min readUK invoice showing a statutory late payment interest calculation

Late Payment Interest in the UK: How to Claim Statutory Interest

How UK businesses can claim statutory interest (8% plus base rate) and fixed compensation on late B2B invoices, with worked calculations and wording.

Getting paid, 3 min readOverdue invoice with a red reminder sticker and a phone beside it

Unpaid Invoice? What to Do, Step by Step

A calm, escalating plan for unpaid invoices: reminders, calls, pausing work, late fees, demand letters, collections and small claims court.

Getting paid, 4 min read