How Much Should You Charge for a Late Fee on an Invoice?

Open the late fee calculatorDownload the late fee sizing worksheet (PDF)

There is no standard late fee, and the law sets the ceiling

Search for a "standard" late fee and you will find confident numbers. None of them is a rule. What you are allowed to charge depends on two things: what your client agreed to, and the law where you and your client are. What you should charge, within that, depends on your invoices.

The legal side genuinely varies. In the US, limits on interest come mostly from state usury laws, and Cornell's Legal Information Institute notes that these limits differ from state to state, with some states, such as Nevada, having no usury law at all. As one example of a state rule, Washington's RCW 19.52.020 sets the highest permissible rate at the higher of 12% a year or a figure tied to Treasury bill yields, with exceptions. Whether a statute like that applies to a late fee on a business invoice, rather than to a loan, is exactly the sort of question to put to a lawyer in that state.

In the UK, the government's guidance says businesses can claim statutory interest of 8% plus the Bank of England base rate on late business-to-business payments, unless the contract sets a different rate. EU countries follow a directive with a similar floor. Consumer customers are usually covered by different rules again.

What a late fee is for

A late fee does two jobs. It compensates you for waiting and chasing, and it moves your invoice up the client's pile when they decide who to pay first. It should not be a punishment, and in the US that is more than a matter of manners: a fixed charge for breaking a contract is often treated as liquidated damages, and Cornell's LII summary says courts will not impose liquidated damages if the clause is punitive or unconscionable.

So the target is a fee that is noticeable enough to avoid, small enough to look like a fair estimate of your cost, and written down before the work starts.

The same late invoice, three ways

Take a $2,500 invoice paid 30 days late, with no grace period. In the invoice late fee calculator:

• 1.5% of the unpaid amount, every 30 days: $37.50.
• A flat $25, every 30 days: $25.00.
• 10% a year, charged by the day: $2,500 × 10% ÷ 365 × 30 = $20.55.

Now take a $300 invoice. The 1.5% fee is $4.50, which nobody will rush to avoid. The flat $25 is over 8% of the invoice in one go, which may look heavy-handed to a client and to anyone reviewing the clause later. That is the main lesson: percentages suit larger invoices, flat fees suit smaller ones, and a business with both may want a flat fee up to a certain invoice size and a percentage above it.

Run your own median invoice, your smallest and your largest. This link opens the calculator with the $2,500 example; change the dates to see 60 and 90 days.

How to choose yours, step by step

1. Check what is allowed

Find out the rules where you are and where your main clients are, and whether your clients are businesses or consumers. If you sell across state or national lines, ask which law your contract says applies.

2. Find your typical invoice

Take your last twenty invoices and find the middle one. Note the smallest and largest as well.

3. Compare three structures

Run the typical invoice through a percentage, a flat fee and yearly interest in the calculator, at 30, 60 and 90 days late. The worksheet with this post has a table for it.

4. Set a grace period

A few days' grace avoids charging someone whose bank transfer took an extra day. With a 7-day grace period, the first fee lands on day 8.

5. Decide on repeats and a cap

A fee that repeats every 30 days keeps the pressure on a long-overdue invoice; a cap stops it growing out of proportion. In the calculator, "Repeat every" and "Never more than" do exactly this.

6. Write it into your terms

Put the fee in your quote or contract, where the client agrees to it before work starts, and repeat it on every invoice. A fee that first appears on an overdue invoice is much harder to justify.

When to waive the fee

A late fee is a tool, not a principle. Waiving it is sometimes the better business decision:

• A first late payment from a long-standing client. A note saying "we have waived the late fee this time" keeps the goodwill and reminds them the fee exists.
• A payment that was late because of you. An invoice sent to the wrong address, a payment link that did not work, a missing purchase order number they needed.
• An invoice in genuine dispute. Adding fees while you are still discussing whether the amount is right makes agreement harder. Resolve the dispute first.

Whatever you decide, keep a note of the exception and the reason. Applying a fee to some clients and not to others, with no record of why, is the pattern that is hardest to defend if it is ever questioned.

Charging it without chasing

The hardest part of a late fee is remembering to add it. Fynl's invoices can do it for you: in Invoice settings, "Add a late fee automatically" takes a percentage of the overdue balance or a flat amount, the days after the due date, how often it repeats and a cap, and the invoice also sends reminders before and after the due date with a card payment link through your Stripe account. If you only invoice now and then, the free calculator and a calendar reminder do the same job.

Our guide to setting up a Stripe payment link covers making the invoice easy to pay in the first place, which prevents more late payments than any fee.

The late fee calculator sits with our free invoice generator and estimate maker on the free tools page.

This is general information, not legal advice. Late-fee and interest rules vary by state and country, and by whether your customer is a business or a consumer. Check the rules where you and your client are, or ask a lawyer, before you set a rate.

Questions people also ask

Sources

• Cornell Law School LII — Usury
• Cornell Law School LII — Liquidated damages
• Washington State Legislature — RCW 19.52.020
• GOV.UK — Late commercial payments: charging interest