How to Charge Late Payment Fees on Invoices (Legally)

Chasing an overdue invoice can feel like the customer holds all the cards. Often they don't. In many places you have a legal right to add interest and a fee when a business pays you late — and even where there's no automatic right, you can build one into your terms. The catch is that late fees only work when they're set up correctly. Charged the wrong way, they're unenforceable and they make you look unprofessional. Here's how to do it properly.

UK: you have a statutory right (even without a contract)

If you're a UK business invoicing another business, the Late Payment of Commercial Debts (Interest) Act gives you the right to charge interest on overdue invoices even if you never wrote anything about it into the contract. According to gov.uk, the statutory interest rate is 8% plus the Bank of England base rate. With the base rate at 3.75% in mid-2026, that's a total of 11.75% a year — and because the base rate changes, check the current figure when you calculate.

On top of the interest you can claim a fixed sum for the cost of chasing the debt, and the amount steps up with the size of the invoice:

• £40 for a debt up to £999.99
• £70 for a debt of £1,000 to £9,999.99
• £100 for a debt of £10,000 or more

That compensation applies per overdue invoice, not per customer, and if your reasonable costs of recovering the money are higher than the fixed sum, gov.uk says you can claim the difference. Interest starts running the day after payment was due. The official rules — and a calculator — are on the gov.uk page for late commercial payments.

US: it's down to your contract and your state

There's no federal late-fee statute in the US. Whether you can charge a late fee, and how much, comes down to two things: what your written agreement says, and what your state's law allows. The practical rules most small businesses follow:

• Put it in writing first. Courts generally won't enforce a late fee that wasn't in the contract or stated on the invoice beforehand, so add a clear late-payment clause to your terms.
• Keep the rate reasonable. A monthly charge of 1–1.5% (roughly 12–18% a year) is widely treated as reasonable; some states cap it lower, so check your own state's usury rules.
• Make it compensatory, not punitive. A fee designed to cover the real cost and time of late payment holds up far better than one that looks like a penalty.

Canada and Australia work on similar principles: charge interest where your contract provides for it, keep the rate defensible, and disclose it up front. The universal rule across every country is the same — the customer should know the late fee exists before the invoice is overdue, not learn about it for the first time on the reminder.

How to set it up on your invoices

1. 1Add a payment-terms line to every invoice and to your contract, e.g. “Payment due within 14 days. Overdue accounts may be charged interest plus a late fee.”
2. 2State the due date as a real calendar date, not just “Net 14”, so there's no argument about when the clock started.
3. 3Wait until the invoice is genuinely overdue — the day after the due date — before applying anything.
4. 4Send a polite reminder first. Most late payments are oversights, and a friendly nudge usually beats leading with a fee.
5. 5If it stays unpaid, issue an updated invoice or statement showing the original amount, the interest, and any fixed fee or compensation, each on its own line.

A worked example

Say a UK design studio is owed £4,000 and the client pays 30 days late. Statutory interest at 11.75% a year works out to roughly £4,000 × 11.75% × 30 ÷ 365 ≈ £38.63. Because the debt is between £1,000 and £9,999.99, the studio can also add £70 in fixed compensation. So the overdue invoice can legitimately carry about £108.63 on top of the £4,000 — a real incentive for the client to pay on time next round, and entirely within the rules.

The fee isn't really the point

The goal of a late fee isn't the few pounds or dollars it adds; it's the behaviour it changes. Clients who know your invoices carry interest tend to move them up the pile. Used well, the policy is a quiet deterrent you rarely have to enforce. For the steps that stop invoices going overdue in the first place, see our guides on getting paid faster and payment reminder emails, and on setting expectations with Net 30 terms.