How to Calculate & Charge Late Fees on Invoices
Learn how to calculate late fees on invoices legally and fairly, what percentage to charge, how to disclose them, and how to add them automatically to every invoice — perfect for freelancers and small businesses.
Late fees (also called interest or overdue charges) are a fair and legal way to encourage clients to pay on time and to compensate you for the delay when they don’t. When used correctly, late fees can significantly reduce the number of unpaid invoices and even cover some of the real costs you face (lost cash flow, extra follow-up time, bank fees, etc.).
Many freelancers and small business owners avoid charging late fees because they worry it’s “unprofessional” or might upset clients. In reality, the opposite is true: clear, reasonable late fees — disclosed upfront — are standard in business and are expected by most professional clients.
This guide explains everything in simple English:
Is it legal to charge late fees?
How much is fair and safe to charge?
How to calculate late fees correctly
How to disclose them so they are enforceable
How to add late fees automatically to every invoice
How to apply them professionally without damaging relationships
1. Is It Legal to Charge Late Fees on Invoices?
Yes — in almost every country (including the United States, Nigeria, United Kingdom, European Union, Canada, Australia, India, and many others), you can legally charge late fees or interest on overdue invoices, as long as you follow a few basic rules:
You must disclose the late fee policy in advance — before the client agrees to work with you (in your proposal, contract, quote, or terms of service).
The rate must be reasonable—not excessively high (courts can reduce or cancel fees found to be unfair or punitive).
You must follow your local contract law, usury laws (limits on interest rates), and consumer protection rules (especially stricter for private consumers/B2C).
Quick examples of what’s allowed in major places:
United States — No federal limit for business-to-business (B2B). Most states allow 1–2% per month if agreed in writing.
Nigeria — No strict cap for commercial debts. 1–2% per month is commonly accepted if clearly stated in the agreement.
United Kingdom — Automatic statutory right to charge base rate + 8% on commercial debts (Late Payment of Commercial Debts Act).
European Union — ECB base rate + 8–10% on B2B late payments (Late Payment Directive).
Bottom line: Disclose the fee before work starts, keep it reasonable, and you’re almost always safe.
2. How Much Late Fee Should You Charge?
Aim for a rate that motivates payment without feeling punitive.
Recommended starting rates (2025/2026 standard):
1–1.5% per month (12–18% annualized) — safest and most widely accepted
2% per month (24% annualized) — still common and reasonable in many places, especially if clearly agreed
Flat fee option — $25–$50 (or ₦5,000–₦15,000) after 14 days overdue — often more effective psychologically than a percentage
Best practice combination:
1.5% per month
Starting after a 7-day grace period (so interest begins on day 8 past due)
Optional small flat fee (e.g., $30 after 30 days)
These rates are high enough to encourage timely payment but low enough to avoid being challenged in most situations.
3. How to Calculate Late Fees (Simple Formulas)
Basic monthly method (most common):
Late Fee = Invoice Amount × Monthly Rate × Number of Months Late
Example:
Invoice = $1,000
Rate = 1.5% per month
45 days late = 1.5 months
Late fee = $1,000 × 0.015 × 1.5 = $22.50
Daily method (more precise):
Daily Rate = Monthly Rate ÷ 30
Late Fee = Invoice Amount × Daily Rate × Days Late
Example:
Same $1,000 invoice
1.5% monthly → daily rate = 0.015 ÷ 30 = 0.0005
45 days late
Late fee = $1,000 × 0.0005 × 45 = $22.50 (same result)
Tip: Round to the nearest dollar or naira for simplicity (clients appreciate clean numbers).
4. How to Disclose Late Fees (So They Are Legally Enforceable)
You must tell the client before they agree to the work. Common places:
In your proposal/quote, Example: “Payment due within 15 days. Late payments are subject to 1.5% monthly interest after the due date.”
In your contract/terms of service, add a short clause: “Invoices are due Net 15 days. Overdue amounts will accrue interest at 1.5% per month (or the maximum rate allowed by law) from the due date until paid.”
On every invoice Include in the terms/notes section: “Payment due in 15 days. Late payments are subject to 1.5% monthly interest after the due date.”
In the invoice email Gentle reminder: “As noted in the invoice terms, late payments incur 1.5% monthly interest.”
Keep proof: saved email, signed contract, or proposal acceptance.
5. How to Add Late Fees Automatically to Every Invoice
Use GenerateInvoice.net (free, no signup for basics):
Pick any template
Scroll to the Notes or Terms section
Paste your late fee clause: “Payment due within 15 days. Late payments are subject to 1.5% monthly interest after the due date.”
Save your settings (browser remembers) — the clause will appear on every future invoice
When sending, mention it politely in the email if needed
Now every invoice automatically includes your late fee rule — no extra work each time.
6. How to Apply Late Fees Professionally (Without Losing Clients)
Give a grace period — start charging only after 7 days past due
Send a friendly reminder first — “Just a quick note — invoice is now overdue. No worries if it slipped your mind.”
Waive the fee sometimes — especially for good long-term clients (builds loyalty)
Never surprise — always remind before charging
Be consistent — apply the same rule to everyone
Most clients will pay quickly once they know fees are real and fair.
7. What to Do If a Client Disputes the Late Fee
Stay calm and polite: “The late fee was stated in the original invoice terms/agreement.”
Offer goodwill: “I can waive part of the fee this time as a one-off courtesy.”
If they refuse completely, decide if the main invoice amount is worth pursuing — sometimes dropping the fee but getting the principal is the smarter business choice