How to charge late fees on invoices (US and UK)

If you have ever looked at an overdue invoice and wondered whether you can add a late fee, the short answer is: sometimes, and mostly only if you said so before the invoice went out. This guide covers how to set it up, what the rules look like in the US and the UK, the wording to use, when to let a fee go, and how to actually collect it.

This is general information, not legal advice. Rules depend on where you and your customer are and what you signed, so check your contract and local law, or ask a lawyer or accountant, before you rely on any of it.

Step 1: agree it in writing before you need it

A late fee is much easier to collect when the customer accepted it up front. That means one of these, in place before the work starts:

• a clause in your contract, engagement letter or terms of business
• terms printed on the invoice itself, if the customer has already agreed to your terms elsewhere
• a signed quote or proposal that mentions it

A fee that first appears on an invoice that is already overdue is the kind customers dispute, and it is hard to defend. If you have no written terms today, add them for new work and for renewals. Do not apply them to old work the customer never saw.

Whatever you write, state the rate plainly:

• the amount or percentage (a flat sum, or a percentage of the unpaid balance)
• when it starts (the due date, or after a grace period)
• whether it happens once or repeats, for example every 30 days
• any cap

Keep it proportionate. A fee that is large next to the invoice looks like a penalty, and a penalty is easier to challenge than a reasonable charge.

Step 2: know the rules where you work

United States

There is no single US rule. What you can charge depends on your contract and on your state, and several states cap interest or late charges or set rules for certain kinds of customers and contracts. Those limits differ a lot from state to state, so we are not going to quote a number. Look up the rules for your state, and for the state your customer is in, before you pick a rate. A state's attorney general or department of financial regulation, or a local attorney, is the right place to ask.

The practical rule is the same everywhere: put the fee in writing, keep it modest, and apply it the same way to every customer.

United Kingdom

If you are a business selling to another business, the Late Payment of Commercial Debts (Interest) Act gives you rights even if your contract says nothing about late payment. According to GOV.UK:

• You can charge statutory interest of 8% plus the Bank of England base rate on a late business to business debt.
• You can also charge a fixed sum for recovering the debt, set by the legislation, and only once for each payment:

• As a supplier you can also claim reasonable costs each time you try to recover the debt, on top of the fixed sum.
• You cannot claim statutory interest if your contract sets a different rate of interest.
• If you decide to add interest to what is owed, GOV.UK says to send a new invoice.

The base rate changes, so check the current one when you work out interest. The two GOV.UK pages to read are charging interest on a commercial debt and claiming debt recovery costs. This applies to business customers. Sales to consumers are covered by different rules, so ask before you charge a person who is not buying for a business.

Step 3: put it on the invoice

Short and plain works best. Here is a line for the foot of an invoice:

"Payment is due within 14 days of the invoice date. Invoices unpaid after the due date and a 7 day grace period incur a late fee of 1.5% of the unpaid balance, charged once every 30 days until paid, up to a maximum of 10% of the original invoice. This is set out in our terms of business."

Change the numbers to whatever you actually agreed and whatever your state allows. Those figures are an illustration of the layout, not a recommendation.

For UK business customers who have agreed no other rate, something like this is enough:

"If this invoice is not paid by the due date, we may claim statutory interest and a fixed sum for recovery costs under the Late Payment of Commercial Debts (Interest) Act 1998."

Put a late fee on its own line, never folded into the invoice total. The original invoice stays the same, and the customer can see what is the debt and what is the charge.

Step 4: say it in the reminder, kindly

Most late invoices are late because someone was busy, not because they are refusing to pay. So send a normal reminder first, with no mention of fees. If the invoice is still unpaid when the grace period ends, a second message can mention the fee calmly:

"Hi Sam, invoice 1042 for $2,400 was due on 3 October and is still open. As set out in our terms, a late fee of $36 applies from today. If you can pay this week, we will take it off. Here is the link to pay. If there is a problem with the invoice, tell me and I will sort it out."

The offer to remove the fee in exchange for payment is the point of the message. It is fair, and it gets paid.

If the customer disputes the invoice, stop. Do not add a fee to an invoice that is being argued about until the dispute is settled. The same goes for a customer who has told you they will pay on a set date: wait for the date to pass.

When to waive it

A fee is a tool, not a goal. Waive it when:

• it is the first time this customer has been late, and they are normally prompt
• the delay was your own error, such as an invoice sent to the wrong person or with a wrong reference
• the customer pays in full right after you mention the fee, and you promised to waive it for that
• the fee would cost you more in goodwill than it brings in

Waive it openly and say so in writing ("I have removed the late fee this time"). That keeps the rule intact for next time. What hurts you is waiving it quietly for some customers and charging it to others, because the customer who gets charged will notice.

How to collect it

Collecting a fee is the same job as collecting the invoice, with one extra step:

1. Issue it clearly. Add the fee as a separate line or a separate invoice, so the customer has something to pay against. 2. Tell the customer the new total and how to pay. 3. Follow up on the fee just like the original invoice. If the invoice is paid but the fee is not, send a short note asking for the fee, and keep in mind that chasing a small fee for months is rarely worth it. 4. Record it. When the fee is paid, mark it paid, and when you waive it, record that. Otherwise the books and your memory disagree later.

If a customer pays the invoice and refuses the fee, decide whether the amount is worth a fight. For small sums, waiving it and keeping the customer is usually the better deal. If you are owed a lot, speak to a professional before you escalate.

What Mugavi does about this

Mugavi is an invoice reminder tool that works from QuickBooks or Xero, and it has a late fee rule you set yourself: a flat amount or a percentage, a grace period, whether it repeats every 30 days, and an optional cap. It lists the open invoices that are now due a fee, and you choose which ones to apply. It never applies a fee on its own, and it skips disputed invoices and invoices with a promise to pay. The limits are real: a fee is not written back to QuickBooks or Xero, it is not added to the payment page so the customer cannot pay it there, and you mark it paid yourself. It does not calculate statutory interest. Setup is in the late fees help page. If you run follow-up for several clients, see Mugavi for bookkeepers, and the pricing page has the plans. You can do everything in this guide with a spreadsheet and your own email.

Related reading: when to charge late payment fees without losing the customer, UK invoice payment terms that make a late invoice easier to chase.