Definition
A late fee is a charge added to an invoice when the client pays after the due date. It can be a flat amount or a percentage of the balance, often 1 to 2 percent per month. Late fees are only enforceable if they were stated in the contract or on the invoice before the work was done.
Also called: Late payment fee, Late payment interest, Penalty interest
Late fee in practice
The purpose of a late fee is to encourage on-time payment, not to generate revenue. Many businesses state a fee but waive it for good clients who pay shortly after a reminder.
Laws limit late fees in many jurisdictions. In the EU and UK, statutory interest rates and fixed compensation apply to business-to-business late payments. In the US, state usury laws cap interest rates.
Frequently Asked Questions
How much should a late fee be?
One to two percent of the outstanding balance per month is typical, or a flat fee of $25 to $50 for small invoices. Check local limits and make sure the fee was agreed in advance.
Can I add a late fee if it was not on the original invoice?
Generally no. Clients can refuse fees they did not agree to. Add late fee terms to your contract and invoice template going forward.