Can you charge late fees on invoices? Interest limits by state

The pay-on-time guide says to set a late fee you can actually charge. This post, part of our getting paid series, collects the state rules behind that sentence. Use the invoice late fee calculator to work out the fee on a specific invoice once you know your rate.

This post is general information, not legal or tax advice. Laws change and depend on where you and your client are; check the sources below or ask a lawyer licensed in your state before relying on a rule. Before you rely on a rate for a large or disputed invoice, ask a business attorney in your state.

When a late fee is enforceable

1. The client agreed in writing before the work began, in the contract or the accepted proposal. A fee that first appears on an overdue invoice is hard to collect.
2. The fee is a reasonable estimate of what late payment costs you (collection time, borrowing, delay), not a punishment. Courts generally refuse to enforce a fixed charge that works as a penalty.
3. The rate stays within your state's limits on interest, where they apply to your kind of transaction.
4. You apply it the way the contract says: from the stated date, on the overdue amount only.

Interest rules in 9 large states

The pattern: a modest monthly rate agreed in advance (1% to 1.5%) sits within or close to most states' rules for business accounts, and Georgia writes 1.5% a month into its statute. Flat fees work differently. A $25 or $50 fee once an invoice is 15 days overdue is judged on whether it's reasonable for the invoice size, so a $50 fee on a $200 invoice is harder to defend than on a $4,000 one.

Worked example: 1.5% a month on $2,400, 45 days late

A late fee clause to copy

LATE PAYMENT. Invoices are due [15] days after the invoice date. Any amount not paid by the due date accrues a late charge of [1.5]% per month ([18]% per year), calculated daily on the unpaid balance from the due date until paid, or the highest rate allowed by law if that is lower. The late charge is a reasonable estimate of the costs of late payment, which are hard to calculate precisely. Contractor may pause work while any invoice is more than [15] days overdue.

"Or the highest rate allowed by law if that is lower" is a savings clause: it keeps the fee from being void if your rate turns out to exceed a cap. Repeat the due date and the late charge on every invoice. More clause wording is in payment terms wording, and the escalation plan shows when to bring the fee up with a client who isn't paying.

Should you actually charge it?

Often the threat matters more than the money. Many freelancers mention the fee in the day-7 reminder, then waive it once if the client pays within a week. For a client who's chronically late, charge it every time and raise your deposit next project. For a client whose payment is stuck in their own accounts-payable process, the fee rarely speeds things up; a call does.

In SoloWOS

SoloWOS Invoicing has no automatic late fee. Put your late payment terms in the invoice Notes, let the automatic reminders (3 days before, then 3 and 7 days after the due date) do the chasing, and when your contract allows it, add the late charge as a line item on a new invoice that references the overdue one. Each invoice shows whether it's sent, viewed, paid or overdue.