Question 1

What's a typical late fee for unpaid invoices?

Accepted Answer

Most US small businesses charge 1-1.5% per month or a flat $25-$50 per missed payment period. State usury laws often cap the maximum interest-style rate; California, for example, generally allows up to 10% per year (≈0.83% per month) for unrelated parties. Texas allows higher rates with proper disclosure. Check your state's usury statutes before charging more than 1.5%/month.

Question 2

Do I need to put the late fee in the contract or invoice?

Accepted Answer

Yes — most courts require the late-fee terms to have been disclosed in the original agreement (signed contract, accepted quote, or stated on the invoice itself before the work was done). Surprise late fees added after the fact are often unenforceable. State on every invoice: "Past-due balances accrue X% interest per month" or "Late fee of $Y per missed payment period" so the term is part of the deal at the start.

Question 3

Should I send a reminder before charging a late fee?

Accepted Answer

Best practice and good business: yes. Common cadence: friendly reminder at day 7 past due, formal reminder at day 14, late-fee notice at day 30, collections threat at day 60. Some businesses waive the first late fee for repeat customers as a goodwill gesture. The point of late fees is to motivate payment, not to penalize — most fees are forgiven once the principal lands.

Question 4

Can I charge late fees on top of late fees (compounding)?

Accepted Answer

Most state laws and reasonable contract interpretations require simple interest, not compound. "1.5% per month on the unpaid balance" should be calculated against the original principal, not against the accrued late fees. Compounding interest fees can be challenged as usurious in most states. This calculator computes simple interest by default.

Question 5

What if the customer disputes the late fee?

Accepted Answer

If the late fee was clearly disclosed in the contract / invoice and the customer received the invoice with adequate time to pay, the fee is generally enforceable. If the customer disputes the underlying invoice (work wasn't completed, billed wrong amount), the late fee is usually waived during dispute resolution. Document everything; small claims court is the typical venue for under-$10K disputes.

Question 6

Is it worth charging late fees on small invoices?

Accepted Answer

The fee mostly serves as a motivator, not a revenue source. On a $200 invoice, a $25 late fee at 30 days overdue is more about telegraphing professionalism than collecting $25. The real value is that customers know you'll enforce — which generally means they pay on time. For small-dollar invoices to long-time customers, many businesses skip the fee but reference the policy on the invoice anyway.

Question 7

When should I escalate to collections?

Accepted Answer

Industry rule of thumb: 90 days past due, after multiple reminders. Sending to a collections agency typically costs you 25-50% of recovered amounts. For amounts under $5K, small claims court is often more cost-effective ($30-$200 filing fee depending on state, no attorney required). For amounts over $10K, an attorney's demand letter often resolves without further escalation — for $200-$500 in attorney fees you usually get the principal paid.

Late Fee Calculator

Late Fee FAQ