How to Charge a Late Fee on an Invoice

How late fees work, how to set one up fairly and how to add it to an overdue invoice.

A late fee is an extra charge for paying an invoice after the due date. It compensates you for the cost and hassle of waiting, and it gives clients a reason to put your invoice ahead of others. Used well, it's rarely charged at all: the fact that it exists is what makes people pay on time. Used badly, it can cost you a client or lead to a dispute. Here's how to do it properly.

Agree on it before the work starts

The most important rule: a late fee should be part of your agreement with the client before they owe you anything. Put it in your estimate, quote or contract, and repeat it on every invoice. Adding a late fee that the client never heard of to an overdue invoice is hard to justify and easy to refuse.

A simple line in your terms is enough to start, for example: "Invoices not paid by the due date are subject to a late fee of [amount or rate], as stated in our agreement."

Check the rules where you work

Late fees and interest on overdue invoices are regulated in many places. Some states limit the interest rate that can be charged, some treat consumer customers differently from businesses, and some require the fee to be disclosed in a certain way. Outside the US, countries such as the UK have their own rules for late payment between businesses. These rules change and depend on your situation, so check your state's rules, or ask an accountant or lawyer, before you settle on a number.

Flat fee or interest?

There are two common ways to charge for late payment:

• Flat fee. A fixed amount added once the invoice is overdue, for example $25 or a set amount per month. Easy to understand and easy to calculate. Works well for small invoices, where a percentage would be tiny.
• Interest (percentage). A percentage of the overdue balance, usually per month, such as 1% or 1.5% per month. It grows with the size of the invoice and with how late it is, which makes it fairer for large amounts. Make sure your rate is within what's allowed where you work.

Some businesses combine both: a small flat fee at first, then interest if the invoice stays unpaid. Whatever you choose, keep it simple enough that the client can work it out themselves.

Give a grace period

Many businesses don't charge the fee the day after the due date. A short grace period, like 5 or 7 days, covers payments that are simply in transit or delayed by a bank. It also makes you look reasonable if you ever do charge the fee. State the grace period in your terms so it isn't a favor you have to remember.

How to calculate the late fee

For a flat fee, the math is just the fee. For interest, you need the overdue amount, the rate and the time it's been late. A simple monthly rate works like this:

• Overdue balance: $2,000
• Rate: 1.5% per month (only an example; use a rate that's allowed where you work)
• Late by one month: $2,000 x 1.5% = $30
• Late by two months: $60, if you charge simple interest on the original balance

The late fee calculator does this for you, with either a flat fee or a percentage, and for any number of days late.

How to add it to the invoice

Don't quietly change the total of the original invoice. Instead, either send a new invoice for the late fee alone, or issue an updated statement that shows the original invoice, the late fee as its own line and the new balance. Label it clearly, for example "Late fee: invoice 1042, 30 days overdue". In the invoice generator you can add it as a line item and reference the original invoice number in the notes.

How to ask for it

A late fee works best as part of a calm, predictable process:

• Before the due date: a friendly reminder that the invoice is due soon.
• On the due date or just after: a short note that the invoice is now due, with the payment link again.
• After the grace period: a message saying the late fee in your terms now applies, with the new balance.

Keep the tone factual: you're applying a term both of you agreed on, not punishing anyone. More ideas on preventing late payment are in how to get clients to pay on time.

When to waive it

You don't have to charge every late fee you're entitled to. For a good client who's late once, waiving the fee, and telling them you did, can earn goodwill. Being consistent matters more than being strict: if you waive it every time, the term stops working. And for a client who pays late again and again, a late fee is less effective than changing the terms, for example asking for a deposit or payment before delivery on the next job.

Make it free →

Frequently asked questions