Late fee calculator

What to charge, and what actually gets you paid

One to two percent a month is the range almost everyone lands on, and it is high enough to be noticed without being the reason a client leaves. The fee is rarely what gets the money in. What gets the money in is a specific figure, a specific date, and an easy way to pay.

That is why the letter above offers to waive the fee if the balance arrives within a week. It costs nothing when they pay, and it converts far more often than a threat does. The fee matters most as something you never have to charge.

How a late fee is calculated

Take what is still outstanding, count the days past the due date, subtract the grace period, and apply the rate across the days that are left. Everything else is a variation on that.

• Percentage per month. The common one. 1.5% a month on $2,400 is $36 for a full month, or $1.18 a day.
• Percentage per year. The same thing expressed as an APR and divided down to the days actually late. Easier to compare, harder to argue with.
• Per day. Adds up faster than people expect: 0.05% a day is 18.25% a year.
• Flat fee. One charge regardless of length. Simple, but on a short delay it works out to a very high annual rate, which is worth knowing before you write it into terms.
• Statutory. A rate set by law rather than by you, which is the safest ground when a client disputes the charge.

Simple interest is the norm. Compounding is defensible if the contract says so plainly, and is the first thing challenged when it does not.

The statutory rates worth knowing

• United Kingdom. For business-to-business debts, 8% above the Bank of England base rate, plus a fixed recovery sum of £40, £70 or £100 depending on the size of the debt. You can claim it even if your contract says nothing about interest.
• European Union. The late payment directive sets 8% above the reference rate, plus a recovery sum of at least €40 per invoice.
• United States. Set by state, and the limits vary widely. Several states cap what can be charged on a commercial debt, and a few restrict it further for consumers. Check the rule where the client is, not where you are.
• Consumer work. Tighter limits almost everywhere. A fee that is fine on a business invoice can be unenforceable on a household one.

The rate the law allows is a ceiling, not a target. Most businesses charge less and get paid sooner, because the point is the deadline rather than the interest.

Making the fee enforceable

A late fee holds up when the client agreed to it before the work started. That means the wording is on the quote and on the invoice, not introduced in the chasing email.

• Put it in the quote. The quote generator carries payment terms, so the fee is agreed at the same moment the price is.
• Repeat it on the invoice. The invoice generator prints the clause on every document.
• Give a real due date. "Net 14" with a date beside it, not "on receipt".
• Charge it consistently. A fee waived every time is a fee nobody believes in.
• Keep it proportionate. A charge a court sees as a penalty rather than a genuine estimate of your loss can be struck out entirely.

Before you charge a fee, check these three

Most overdue invoices are not refusals. They are an invoice sitting in the wrong inbox, a purchase order number missing, or a payment run that happens on the 25th.

• Did it reach the right person? Accounts payable is rarely the person who hired you.
• Does it carry their reference? A missing PO number is the single most common reason an invoice sits unpaid without anyone objecting to it.
• When is their payment run? Many businesses pay on fixed days. Knowing that turns a chase into a diary note.

Once you have the answer, this page works out the interest and writes the letter that goes with it. If none of it lands, the next step is a formal demand letter, sometimes called a letter before action: the same figures, stated plainly, with a deadline and a note that you will otherwise pursue the debt. The late fee calculator covers the interest arithmetic on its own.

What a late fee is really worth

An early payment discount is often the stronger tool. Two percent for paying twenty days early is worth about 37% a year to the client, which is why it moves invoices that a late fee does not. The fee protects you; the discount motivates them. Used together they cover both ends of the same problem.

Work out what the delay is actually costing you first. If you are paying suppliers on thirty days and being paid on sixty, the gap is a financing cost with your name on it, and that is the number to set your terms against, not the fee.