Invoice Late Fees: What You Can Charge and How to Collect

A late fee is not really about the money. Most of the time it recovers less than the hours you spend chasing. What it does is change your position in the queue: an invoice that costs something to ignore gets paid before one that does not.

This guide covers what you can legally charge, how to calculate it, the exact wording to put in your contract and on your invoices, how to claim statutory interest when you never agreed a rate, and — just as importantly — when charging a fee is the wrong move.

What a late fee is, and when you can charge one

A late fee is compensation for being paid after the agreed due date. It comes in two forms: a fixed charge applied once, or interest that accrues for as long as the balance is outstanding. Many businesses use both.

The critical point is that a contractual late fee is only enforceable if the client agreed to it before the debt arose. Three conditions have to hold:

• It was agreed in advance — in a signed contract, accepted quote, or terms the client accepted before work started.
• It was clearly stated — a specific rate and the basis it is charged on, not "late fees may apply".
• It is proportionate — a fee that looks like a penalty rather than compensation for late payment can be challenged, and in some jurisdictions struck out entirely.

Adding a fee to an invoice for the first time after payment is already overdue does not meet the first condition. You may still have a statutory right to interest — covered further down — but that is a different mechanism with different limits.

Flat fee or percentage: which to use

For most freelancers and small businesses, monthly interest at 1.5% is the sensible default. It is widely recognised, scales with the size of the debt, and keeps applying pressure for as long as the invoice is unpaid. A flat fee is a good addition when your invoices are small and similar in size, because 1.5% of a £180 invoice is £2.70 — not enough to change anyone's behaviour.

How much you can charge, and the legal caps

What you may charge depends on where you and your client are based, and on what the contract says. The ceilings below are the ones that most often catch people out.

Rules and rates change; confirm the current position for your jurisdiction before relying on a figure.

This is general information, not legal advice. Take advice on your own contracts before relying on a specific rate, particularly if you invoice across borders.

The trap worth naming explicitly: a rate stated per month is much larger annualised than it looks. 2% per month is roughly 27% a year compounded — above the cap in several US states and uncomfortably close to limits elsewhere. If you want a rate that is safe almost everywhere, 1%–1.5% per month is it.

Working out what you are owed

The usual method is simple interest, pro-rated by day. Take the outstanding balance, apply the monthly rate, divide by the days in the month, and multiply by the days overdue:

Worked examples at 1.5% per month, simple interest, pro-rated daily.

Two decisions to make explicit in your wording, because they change the number and are the most common source of argument:

• Simple or compound? Simple interest charges on the original balance only. Compound charges on the balance plus accrued interest. Simple is easier to defend and easier to explain — use it unless you have a reason not to.
• Does the fee itself accrue interest? If you also charge a flat administration fee, say whether interest applies to it. Cleanest answer is no.

Rather than doing this by hand each time, our late fee calculator takes the balance, rate and due date and returns the exact figure, so your follow-up can quote a number the client can check.

Wording for your contract and your invoices

The clause goes in the contract; a short restatement goes on every invoice. You need both — one makes the fee enforceable, the other makes it visible to whoever is processing the payment.

Late payment

Invoices are payable within [30] days of the invoice date. Any balance remaining unpaid after the due date shall accrue interest at [1.5%] per month, calculated on a daily basis from the day following the due date until payment is received in full.

In addition, an administration charge of [£35] shall become payable on each invoice that remains unpaid [7] days after its due date.

The Client shall reimburse all reasonable costs incurred in recovering overdue sums, including collection agency and legal fees.

Payment due: 15 October 2026

Overdue balances accrue interest at 1.5% per month from the day after the due date, and an administration charge of £35 applies after 7 days, in accordance with our agreement dated [date].

Subject: Invoice [INV-2026-014] — late payment interest applied

Hi [name],

Invoice [INV-2026-014] for [2,000.00] was due on [15 October] and is now 30 days overdue.

In line with clause [7] of our agreement dated [date], late payment interest of 1.5% per month has been applied:

  Original balance      2,000.00
  Interest (30 days)       30.00
  Administration charge    35.00
  ------------------------------
  Total now due         2,065.00

I have attached a revised invoice showing these amounts. Interest continues to accrue daily until the balance is settled.

If something is holding up payment at your end, tell me what it is and I will work with you on it.

[your name]

Claiming statutory interest with no clause

If you never agreed a late fee, you are not necessarily without a remedy. Several jurisdictions give business creditors a statutory right to interest and fixed recovery costs on commercial debts, whether or not the contract mentions it.

Statutory entitlements on business-to-business debts. Reference rates move — check the current figure before claiming.

The UK and EU entitlements are often worth more than a modest contractual rate on a small invoice, because the fixed compensation applies per invoice regardless of size. On a £900 invoice paid two months late, statutory interest might come to around £19 while the fixed sum adds £40 on top.

You can generally choose between your contractual rate and the statutory one, but not both for the same period. If your contract rate is lower than the statutory entitlement, that is a good reason to revisit the clause.

If you invoice UK clients and want the statutory position to be available to you, the invoice itself needs to carry the right company and VAT details — our UK invoice generator includes them by default, and the freelancer invoice generator carries your terms and late fee policy onto every invoice automatically.

Actually charging it without losing the client

The most common failure is not having no policy — it is having one and never using it. A fee you never apply teaches clients that your due dates are advisory. A fee applied predictably, without drama, teaches the opposite.

The one-line warning before the fee applies does most of the work. Many clients who would argue about a surprise charge will simply pay to avoid a signposted one.

When not to charge a late fee

Having a policy does not mean applying it in every case. Charging is usually the wrong call when:

• The delay is your fault. A missing purchase order number, wrong billing address or unsent invoice is not late payment. Fix it and reset the clock.
• It is a first slip from a reliable client. One late payment from someone with a two-year record is worth a conversation, not a charge.
• The relationship is worth more than the fee. On a large ongoing account, £30 of interest is not a good trade for goodwill — though this is exactly the reasoning that lets chronic late payment become normal, so watch for the pattern.
• The client is genuinely in trouble. If they cannot pay at all, a fee adds a number to a debt you may already struggle to recover. A payment plan usually recovers more.

When you do waive one, say so explicitly — "I have waived the £35 charge on this occasion" — so it registers as a decision rather than an oversight. Waiving silently gets you the cost with none of the credit.

Late fees are one instrument among several. For how they fit alongside net terms, deposits and early payment discounts, see the complete guide to invoice payment terms, and how to send invoices for the delivery and reminder side.