Charging late fees isn't as straightforward as "you owe me money, plus interest." The rules vary significantly by jurisdiction, contract type, and relationship. Here's what you need to know.
The Short Answer
Yes, you can charge late fees. But the amount, structure, and enforceability depend on several factors:
If You Have a Written Contract
A signed contract that specifies a late fee amount and/or interest rate is generally enforceable in most US states. Courts look at:
- Is the fee amount specified? — Vague language like "fees may apply" isn't enough.
- Is the amount reasonable? — Courts often reject punitive rates (e.g., 5% per month on a consumer invoice) but accept standard business rates.
- Was it clearly communicated before the work began? — The client needs to have agreed to the terms.
If You Don't Have a Contract
This gets murkier. Without a written agreement specifying late fees:
- You may be able to charge statutory interest (governed by your state's laws)
- You generally cannot impose penalty-style fees without a contract
- Small claims courts are more sympathetic to fee requests that match actual losses
What's Considered Reasonable?
- 1-1.5% per month (12-18% annually) — The most common commercial rate, similar to credit card interest.
- Flat fees ($25-$75/month) — Easier to enforce than percentage-based fees in some states.
- Flat late fees ($15-$50 per overdue invoice) — Simple and predictable.
What's NOT Enforceable
- Excessive rates — Interest above 18-30% annually will likely be reduced by a court.
- Penalty clauses — Fees designed purely to punish, not compensate for actual costs, may be struck down as unconscionable.
- Consumer contracts without proper disclosure — If you're working with a consumer (not a business), additional consumer protection laws apply.
Statutory Interest Rates by State
If there's no contract, some states allow you to charge a statutory rate on overdue invoices (usually around 5-10% annually). The federal rate is currently 7%, but many states differ.
Best Practice: Include a Clear Late Fee Policy
Every invoice you send should include:
- Payment terms (Net 30, Net 15, etc.)
- Late fee amount and when it starts
- Any interest rate or minimum flat fee
DueKeep lets you set a default late fee policy — start for free and add your payment terms to every invoice →