Most agency contracts have a late fee clause nobody has read since the day it was pasted in. It usually says something like "2% per month" or "$50 per late invoice," and it usually sits there doing nothing. Then one day a client's controller pushes back, and you find out the clause was never enforceable in the first place.
Here's how to write one that holds.
A fee and an interest charge are not the same animal
This trips up almost everyone. A finance charge — 1.5% per month on the unpaid balance — is interest, and it's governed by your state's usury statute. A flat late fee — $75 every time an invoice ages past 30 days — is treated as liquidated damages, and courts ask a different question: is this a reasonable estimate of what lateness actually costs you, or is it a penalty? Penalties don't survive.
Flat fees fail more often than percentage charges do, because it's hard to argue with a straight face that a late $800 invoice and a late $80,000 invoice cost you the same $75. If you want a flat fee, keep it small and tie it to something real — the cost of re-running the payment, the admin time to re-issue. Otherwise use a percentage. Percentages scale with the harm on their own.
The one line that does the most work
Whatever rate you pick, end the clause with a savings provision:
Balances remaining unpaid after the due date accrue a service charge of 1.5% per month (18% per annum), calculated as simple interest on the unpaid principal only, not to exceed the maximum rate permitted by applicable law.
That last clause is your seatbelt. If you're a Chicago agency with a client in Texas and it turns out the applicable ceiling is lower than what you wrote, the charge gets read down to the legal maximum instead of getting struck entirely. Without it, an over-ceiling rate in some states voids the whole interest provision — and in a few, it puts your principal at risk too. One sentence, and the worst case becomes "you collect less than you hoped" instead of "you collect nothing."
Where the ceiling actually comes from
Three things decide your number, and you need all three:
Is this B2B or B2C? Most agency work is business-to-business, and most states either exempt commercial transactions from usury caps entirely or set a far higher ceiling for them. If you ever invoice an individual — a solo founder personally, an estate, a private client — you're in consumer territory and the cap drops hard. Don't run one policy across both.
Which state's law applies? Your contract's choice-of-law clause usually governs, and picking your home state is normal. But consumer protection statutes in your client's state can override it, and a court in their state may apply its own rules regardless of what you wrote.
Is there a prompt-pay statute in play? Government contracts, subcontracting, and construction-adjacent work often come with statutory interest rates that supersede your contract in both directions — sometimes better than what you wrote, sometimes worse. If you invoice a municipality or sit under a general contractor, look this up specifically.
1.5% per month is the industry default for a reason: 18% annualized clears most commercial ceilings comfortably. If you compound it monthly instead of calculating simple interest, the effective rate is 19.56% — enough to cross a line in a few places. Say "simple" in the clause and mean it.
Don't charge fees on fees
Two mechanical rules that keep a clean policy clean:
Calculate the charge on unpaid principal, never on principal-plus-accrued-charges. Compounding a late fee onto a late fee is the fastest way to make a defensible number look predatory.
And stop the clock on genuinely disputed line items. If a client is contesting one deliverable on a five-line invoice, charge on the four they aren't contesting. This costs you almost nothing and removes the single best argument they have for ignoring the whole thing.
Written down beats brought up
The fee has to be in the signed agreement, before the work. Printing it on the invoice for the first time doesn't create an obligation — it announces one, which is a different and much weaker thing. Then put it on the invoice too: state the rate, the grace period, and the date charges begin. Both places.
A grace period is worth having. Five to ten days after the due date, stated explicitly. It costs you very little and it makes the charge feel like policy rather than a trap.
Decide who gets to waive it
Most agencies waive late fees constantly and haphazardly — whoever is on the call decides. That's the real leak. Write down who has waiver authority and up to what amount, log every waiver with a reason, and book the charges to their own income line so you can see annually what you assessed versus what you actually kept.
The number is usually humbling. It's also your best negotiating chip: "we'll waive the accrued service charge if the balance clears by Friday" closes conversations that a flat demand won't.
FetchDue tracks accrued charges per invoice and works them into the follow-up automatically — including the waiver offer, when you want it made. You still approve every message before it leaves your mailbox.
One last thing: this is operating guidance, not legal advice. Your rate and your ceiling are worth twenty minutes with an attorney licensed where you work. Do it once, and the clause stops being decoration.