Late Fees on Invoices: How to Charge Them Fairly
Updated
A late fee isn't really about the money. It's a reason for the client to put your invoice at the top of the pile. Used well, you'll rarely have to charge it.
Agree on it before you need it
A late fee is easiest to defend when the client agreed to it before the work began: in your contract, your quote, or your standard terms. Repeat it on every invoice. A fee that first shows up on an overdue invoice is more likely to start an argument than a payment.
Two ways to charge
| Flat fee | Interest on the balance | |
|---|---|---|
| How it works | One fixed charge when the invoice goes past due | A percentage of the unpaid balance for each month it stays unpaid |
| Typical amount | $25 to $50, or 5% of the invoice | 1% to 1.5% each month (12% to 18% a year) |
| Best for | Small invoices, where 1.5% is barely noticed | Larger invoices and long delays |
Flat fee of 5%: $120, charged one time.
1.5% interest: $36 for each full month it stays unpaid.
Charge interest on the unpaid balance only, not on earlier late fees, unless your agreement and state law clearly allow it.
Wording you can copy
Invoices are due within 30 days of the invoice date. Balances unpaid after the due date accrue a late fee of 1.5% of the unpaid amount for each month past due.
Payment due by April 2. A late fee of 1.5% of the unpaid balance applies for each month past due.
Check your state's rules
There's no single federal rule for late fees between businesses. Each state sets its own limits on interest and late charges (interest caps are often called usury laws), and some treat charges to individual consumers more strictly than charges to companies. Before you settle on a rate, check your state's limit or ask an accountant or attorney. This guide is general information, not legal advice.
Before you charge it
- Send a reminder first. Many late invoices are simply lost in an inbox.
- Give a short grace period, such as 5 days, if it suits the relationship.
- Add the fee as its own line on a new or updated invoice, so the client sees the original amount and the fee separately.
- Waiving it for a good client who pays quickly is fine. Say so in writing, so it doesn't become the new rule.
Questions
How much can I charge as a late fee?
Many small businesses charge 1% to 1.5% of the overdue balance each month, or a flat fee. The legal maximum depends on your state, so check it before you put a rate in writing.
Can I add a late fee if it wasn't in our agreement?
You can ask, but it's much harder to enforce. Add late-fee terms to your contract or quote for future work instead, and send polite reminders on this invoice.
Is it better to offer an early-payment discount?
Sometimes. A small discount such as 2% for paying within 10 days rewards good clients instead of punishing slow ones. Some businesses use both.
Ready to send yours?
Put your due date and late-fee terms on the invoice; the Notes box is the place for the wording above.