Example
1.5% a month on a $2,450 balance adds $36.75 for the first month.
Also called interest on overdue invoices, a finance charge, or a late payment charge.
What it means in practice
A late fee is usually a monthly percentage of the overdue balance, and sometimes a flat charge. It works as a deterrent rather than as income: most clients pay before it applies once they know it exists.
It has to be agreed before the work, which means it belongs on the quote and repeated on the invoice. A fee that first appears on a reminder is hard to enforce, and several states cap what you can charge.
Covered in full in the guide to chasing an unpaid invoice.
Where it shows up on the paperwork
It lives in the terms line on the quote and again on the invoice, stated as a rate and a period. When it applies, it appears on the notice as its own figure and a new total.
What goes wrong
- Charging a fee that was never on the quote, which is difficult to enforce and easy to argue with.
- Setting a rate high enough to look punitive, which several states will not uphold.
- Applying it to a client who is disputing the work rather than dodging the bill. Sort the dispute first.
Common questions
What is a reasonable late fee?
Around 1 to 1.5% a month is the common band for US small business invoices, and some states cap what you can charge. What makes it work is that it was agreed in advance and applied consistently.
Can I charge a late fee if it is not on the invoice?
Not with much force. The fee has to be part of what the client agreed to before the work, which means the quote first and the invoice repeating it.
Should I always charge it?
No, and most people do not. Its value is that it exists and the client knows it. Charging it is a decision about the relationship as much as the money.