How to Charge Late Fees on Invoices

A late fee is a charge you set in your own terms for paying after the due date. It is a different tool from statutory interest, which some countries' laws give a creditor whether or not the contract mentions it. This guide covers the practical setup of a late fee: where it goes, how to structure it, what the statutory rates are as a benchmark, and where statutory interest comes in on its own. The late payment interest explainer covers the statutory side in more depth.

Agree it before the work starts

Put the late fee in the contract or engagement letter you agree before the work begins, and repeat it on every invoice. The contract is where the buyer agrees to it; the invoice is the reminder. A charge that first appears on an overdue invoice is one the buyer never agreed to and can dispute. If you are setting your payment terms from scratch, the guide on how to write payment terms on an invoice covers the rest of the clause.

Where the fee goes on the invoice

The late fee belongs in the payment-terms block, next to the due date and the accepted payment methods. State the trigger, the structure and the base in one sentence: "Payment is due within 30 days. Interest at [rate] per year applies to any balance unpaid after the due date." Name an actual rate rather than "late fees may apply", which leaves the buyer nothing definite to agree to. To make sure the due date itself is unambiguous, the invoice due date calculator works it out from the invoice date and your terms.

Flat amount or percentage

A flat fee is a single fixed charge once an invoice is overdue. It is simple to state and does not grow with the delay.

A percentage charges a share of the outstanding balance per period, so it grows with both the debt and the delay. At 8% a year, a 4,000 invoice unpaid for 30 days accrues 4,000 x 0.08 x 30 / 365, about 26; after 90 days, about 79.

Some businesses combine the two: a flat charge plus interest on the balance. Several statutory schemes are built the same way, as the late payment interest explainer shows. Whichever you choose, state it the same way on every invoice.

The statutory rates, as a benchmark

Where the law sets a rate for late commercial payments, it is a useful reference point for your own:

• EU: Directive 2011/7/EU defines statutory interest for late payment as simple interest at the reference rate plus at least eight percentage points; for euro countries the reference rate is the European Central Bank's main refinancing rate.
• UK: the Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002 sets statutory interest at 8% a year over the official dealing rate in force on 30 June or 31 December before interest starts to run.
• Germany: § 288(2) BGB sets nine percentage points over the Basiszinssatz for payment claims in transactions without a consumer.
• Spain: article 7 of Ley 3/2004 sets the European Central Bank's rate plus eight percentage points where no rate was agreed.

In the UK a contractual late-payment remedy can replace statutory interest only if it is a "substantial remedy": under section 8 of the Late Payment of Commercial Debts (Interest) Act 1998, terms that exclude statutory interest without a substantial contractual remedy are void, and section 9 sets out when a remedy is not substantial, including when it is insufficient to compensate the supplier or to deter late payment. A late fee set well below the statutory scheme can therefore leave statutory interest in place.

What the law gives without a clause

A late fee is not necessarily the creditor's only claim. Where the law grants statutory interest on an overdue commercial invoice, it applies whether or not the contract mentions it, sometimes with a fixed recovery sum on top; the late payment interest explainer sets out the rules jurisdiction by jurisdiction. If your own fee is lower than what the statute would give, that is the point at which the UK's "substantial remedy" test above starts to matter. The late payment interest calculator totals the interest for the days an invoice is overdue.

A grace period

A grace period is a delay between the due date and the day the fee starts. If you allow one, state it exactly: "Interest applies to balances unpaid more than 7 days after the due date." That tells the buyer precisely when the fee begins.

FAQ

Where should the late fee appear on my invoice?

In the payment-terms block of the invoice, and first in the contract or engagement letter. State the fee, when it starts and how it is calculated, for example: "Interest at [rate] per year applies to balances unpaid after the due date."

Should I charge a flat late fee or a percentage?

A flat fee is simple and does not grow with the delay; a percentage grows with the debt and the delay, at 8% a year about 26 on a 4,000 invoice for 30 days. You can combine the two, a fixed charge plus interest on the balance.

What is a reasonable late fee amount?

The statutory rates are a benchmark: the reference rate plus at least eight percentage points under Directive 2011/7/EU, 8% over the official dealing rate in the UK, nine percentage points over the Basiszinssatz in Germany without a consumer, and the European Central Bank's rate plus eight points in Spain. In the UK a contractual remedy that is not "substantial" cannot displace statutory interest (sections 8 and 9 of the Late Payment Act).

Do I need a grace period before charging a late fee?

That is your choice. If you allow one, state it exactly in your terms so it is clear when the fee starts.

Can I add a late fee after the invoice is already overdue?

A contractual fee belongs in the terms agreed before the work; one added after non-payment is a charge the buyer never agreed to. Statutory interest is different: where the law grants it, it needs no clause, and the late payment interest explainer covers where that is.

Is a late fee the same as statutory interest?

No. A late fee is a charge you set in your own terms. Statutory interest is a rate the law grants on overdue commercial debts in places such as the EU and the UK, whether or not your contract mentions it. In the UK, a contractual remedy replaces statutory interest only if it is a substantial remedy. See the late payment interest explainer for the statutory side.