A late fee does two useful things: it nudges a slow payer to move you up the queue, and it compensates you for the time your money spent in someone else's account. But "add a late fee" is not as simple as picking a scary number. How much you can actually charge — and make stick — depends on your contract and on where your client is.
This is a plain-English overview, not legal advice. When real money is on the line, check your state's rules or ask a lawyer.
The fee has to be in the contract first
The most common mistake is inventing a late fee on the invoice after the work is done. If your agreement never mentioned it, it's hard to enforce and easy for a client to wave away. Put it in the master services agreement or the statement of work, in one clear sentence: the rate, when it starts, and how it's calculated.
A typical, defensible clause is a 1–1.5% monthly finance charge on past-due balances — often written as "1.5% per month" or an annualized rate. That range is common in professional services and reads as reasonable rather than punitive.
States cap what "reasonable" means
Here's where geography matters. Many states set a ceiling on the interest or finance charge a business can add, and a few treat anything above that ceiling as unenforceable. The specifics vary a lot:
- Some states allow the parties to agree to almost any rate in a signed contract.
- Others cap the annual rate for commercial balances, so a 1.5%/month clause (18%/year) may sit right at or near the line.
- A handful have specific rules for certain industries or for consumer-facing work.
The practical takeaway: a modest monthly percentage, agreed to in writing, is almost always safe. Aggressive numbers are where you get into trouble — both legally and with the relationship.
Give notice before the fee lands
Even a valid fee will cost you goodwill if it shows up as a surprise. Build in a grace step: a reminder a few days before the fee applies gives an honest-but-busy client a chance to pay and avoid it. Most will. The ones who don't have told you something useful.
Make it consistent, or don't bother
A late fee you apply to some clients and forget on others isn't a policy — it's a mood. Inconsistent fees are the ones that get disputed. If you're going to charge them, charge them the same way, every time, on the same schedule.
That consistency is the hard part when you're running dozens of invoices by hand. FetchDue applies your late-fee policy for you — within the terms you set, with a heads-up reminder first — so the fee is fair, predictable, and always in your voice. You approve every step.