Is it legal to charge a late fee on an invoice?

Generally yes, provided the fee was agreed in advance (in your contract or stated on the invoice) and stays within any legal cap that applies in your jurisdiction. In the UK, businesses also have a statutory right to charge interest and compensation on overdue B2B invoices even without a contractual term.

What is a reasonable late fee percentage?

A commonly used rate is 1–2% per month on the outstanding balance (1% to 1.5% is typical), or the maximum permitted by law if lower — or a modest flat fee per overdue invoice. The fee should compensate you for late payment rather than punish the client, and it must respect any statutory cap in your area.

Can I charge a late fee if it wasn't in my contract?

It's much harder to enforce a fee you introduce after the invoice is already overdue. The exception is jurisdictions with statutory late-payment rights — notably UK B2B invoices — where interest and compensation can apply even if your contract is silent. The safe approach everywhere is to state the policy in writing before the work starts.

When should I start charging interest on an overdue invoice?

Only after the agreed due date has clearly passed. Send reminders first; apply the fee once the invoice is genuinely overdue, and tell the client you're applying it and how it was calculated. Charging from the first day past due, as stated in your terms, is standard.

How to Charge Late Fees on Overdue Invoices

Can You Actually Charge a Late Fee?

Yes — but only if the client agreed to it, or the law gives you the right. A late fee you invent after the payment is already overdue is hard to enforce. A late fee written into your terms before the work started is on much firmer ground.

So the real work happens up front. State your late-fee policy in the contract or on the invoice itself, in plain language, before there's ever a dispute. Then a late fee isn't a surprise penalty — it's simply the term the client agreed to.

How Much Can You Charge?

Late fees usually take one of two forms: a flat fee (for example, £25 per overdue invoice) or a percentage of the outstanding amount charged monthly (commonly 1–2% per month, which is the same idea as interest).

Keep it reasonable. A fee that looks punitive rather than compensatory can be challenged, and an aggressive rate damages the client relationship more than it's worth. A commonly used rate is 1% to 1.5% per month on the overdue balance — or the maximum permitted by law, if lower — applied only after the due date has clearly passed.

Don't stack fees unfairly: charging both a large flat fee and a high monthly percentage on the same small invoice tends to look excessive. Pick one primary mechanism and keep the rate sensible.

The Rules Differ by Country

United Kingdom: for qualifying business-to-business debts, the Late Payment of Commercial Debts legislation gives a statutory right to interest at 8 percentage points above the Bank of England base rate, plus fixed compensation (£40, £70, or £100 depending on the size of the debt), even if your contract is silent. It does not apply to consumer debts. You can set your own contractual rate instead, but it must be a substantial remedy for late payment — otherwise statutory interest can still apply.

United States: there's no single federal rule — enforceability and caps are mainly matters of state law, and the rules can differ between contractual interest, late fees, consumer debts, and commercial accounts. A late fee is generally enforceable if it was agreed in advance and stays within your state's limits.

Canada and Australia: charging interest on overdue accounts is common and generally enforceable when it's a written, agreed term. In Australia, the usual approach is to state a contractual rate on your invoice. In Canada, if you express interest monthly (for example 1.5% per month), also state the equivalent annual rate in writing — under the Interest Act, interest above 5% per year may otherwise be unrecoverable.

Bottom line: agreeing the fee in writing in advance is what makes it stick almost everywhere. For the exact statutory rates and caps that apply to you, check your local government or tax authority — the figures change.

How to Word Your Late-Fee Policy

Put the policy where the client can't miss it — in the contract and as a line near the payment terms on every invoice. Keep it specific: state when the fee starts, how it's calculated, and how often it recurs.

Example wording: "Payment is due within 30 days of the invoice date. Overdue balances are subject to a late fee of 1.5% per month (or the maximum permitted by law, if lower), applied from the first day after the due date."

The phrase "or the maximum permitted by law, if lower" is a useful safety net: it keeps your clause valid even in a jurisdiction that caps the rate below what you wrote.

Charging the Fee Without Burning the Bridge

A late fee is leverage, not a first move. The goal is to get paid and keep the client, so escalate gently.

Start with a friendly reminder a few days before the due date, then a clear note on the day it's overdue. If it stays unpaid, send a follow-up that references your agreed late-fee terms — often the mention alone prompts payment. Only apply the fee when the invoice is significantly overdue, and tell the client you're doing it and why.

Our guide on getting invoices paid faster covers the reminder cadence in detail, and clear payment terms prevent most late payments before they start.

Add It to Your Invoice in Seconds

You can add a late-fee line to the notes or terms section of any template using our free invoice generator — set your payment terms, drop in the wording above, and download a clean PDF. Browse the industry templates if you want a pre-filled starting point for your trade.