How Much Should a Late Fee Be? Rates, Math and Limits
The short answer: most freelancers and small businesses charge between 1 and 1.5 percent of the unpaid balance per month, or a small flat fee, and write it into the contract or invoice terms before the work starts. The right number for you also depends on what your state allows, so treat anything below as a starting point to check, not legal advice.
What the published guidance says
Wise's guide to invoice late-fee wording cites QuickBooks research that many companies charge 1% to 1.5% per month, and gives a sample term: "Invoice payment is due within 30 days. Please be advised that we will charge 1% interest per month on late invoices." Source: Wise, invoice late fee wording (its sources were checked in June 2024, so confirm current rules).
FreshBooks' guide suggests basing the fee on your state's maximum allowable interest rate: divide the state's maximum annual rate by 12. Its example of an 18% annual maximum gives a 1.5% monthly charge. It adds that the fee should encourage prompt payment, not generate revenue. Source: FreshBooks, late payment fees.
What 1%, 1.5% and 2% a month cost
Simple (non-compounding) fee for one full month late:
| Invoice | 1% a month | 1.5% a month | 2% a month |
|---|---|---|---|
| $500 | $5.00 | $7.50 | $10.00 |
| $1,500 | $15.00 | $22.50 | $30.00 |
| $5,000 | $50.00 | $75.00 | $100.00 |
The same rates as a yearly figure are 12%, 18% and 24%. On a $1,500 invoice that is 45 days late, 1.5% a month comes to $33.75 (1,500 × 1.5% × 1.5 months). FreshBooks' own example, 1.5% a month on a $5,000 invoice 30 days late, is $75, which matches the table. You can try your own numbers in the late fee calculator.
Flat fee or percentage?
- A percentage grows with the balance and the time, so it is fairer on large invoices and keeps pressure on a slow payer.
- A flat fee is easy to explain and works for small invoices, where 1.5% of $300 is only $4.50 and would not get anyone's attention.
- Both is common: a small flat fee after the grace period, then a monthly percentage.
Whichever you pick, name it in the agreement and on every invoice. Wise's guide says late fees are generally permissible only when the terms appear on the original invoice or contract.
What can cap it
Your state may limit the interest you can charge. Wise's guide cites California at 12% per year and New York at 16% per year (its figures, checked June 2024). FreshBooks tells readers there are different laws in each state and to look yours up. Whether a state's cap applies to a particular business invoice depends on the rules where you work, so ask your state's consumer or commercial law resource, or a lawyer, before you commit to a rate. Compound interest is the riskiest to include; Wise says it may be limited or prohibited in many countries.
A simple rule
- Pick a monthly rate at or below 1.5%, and check it against your state's limit.
- Add a grace period (many people use a few days) and say it out loud in the terms.
- Write the exact wording into your contract and invoice template.
- Send a friendly reminder before charging anything. Many freelancers waive the fee for a first-time late payment, and keep it as leverage.
Our free late payment reminder emails give you wording for each step, from a polite nudge to a final notice. For the longer story, see freelance late payment fees and how to calculate a late fee on an invoice.
FAQ
Can I charge a late fee if it is not in the contract?
Usually you should not rely on it. Late fees are generally enforceable only when the terms were agreed up front, so add them to your contract and invoices before the work starts.
Is 1.5% a month too high?
It is within the 1% to 1.5% range Wise cites from QuickBooks research, and 1.5% a month equals 18% a year. Check it against your state's limit before using it.
Should I charge interest or a flat fee?
Either can work. A flat fee is simple on small invoices, a monthly percentage scales on bigger ones. Pick one, write it down, and apply it consistently.
General information, not legal advice. Late-fee and interest rules differ by place; confirm what is allowed where you and your client are based.