Invoice late fee wording: How to charge interest and late fees (2023)

Late fees can encourage on-time payment and lessen the impact of late payments on your cash flow.

But charging late fees can be daunting for many business owners.

Using the correct invoice late fee wording is essential when collecting late fees. Clear late fee wording maintains a professional appearance, avoids confusion, and can prevent offending any customers. It can also help you get paid faster.

This guide will cover: Late fee wording, how to charge late fees, if you should charge them, and what rate to charge.

This piece has been written in collaboration with Esther Friedberg Karp, an esteemed bookkeeper and QuickBooks ProAdvisor.

Invoice late fee wording

It is important to include late fees when issuing an invoice. This gives legal ground for charging and pursuing invoice payments. It can also encourage prompt payment.

Invoice late fees are usually included in the ‘terms’ section of the invoice. The invoice payment terms should detail when late fees are due and the rates applied.

A simple example late fee phrase could be:

“Invoice payment is due within 30 days. Please be advised that we will charge 1% interest per month on late invoices.”

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If a customer is late paying an invoice, you can then follow up with a late fee letter. The late fee letter should be polite, accurate, informative, and based on the terms in the original invoice.

Some things to include in the late fee wording are:

  • The invoice number and the items/services in the email subject for easy reference.
  • Summary of the original invoice contents and amount due, along with the late fee and total amount now due.
  • A specific due date for the new total amount.

The wording of the late fee terms should be simple and brief. It is also good practice to attach a copy of the original invoice, for the customer’s reference.

🔍 For some example late fee letters, you can also read the guide to past due invoices.

How to charge invoice late fees

Companies often wonder how they can charge fees for late payment of invoices. Legally, you can charge late fees if notice has been given on the original invoice.

Clear late payment terms should be included on the invoice. It is then up to the company to decide whether to charge from a customer relationship point of view.

Are late payment fees legal?

Yes, late payment fees are legal, if the late fee terms are properly included in the original contract/invoice. Rules, limits, and other regulations are set in law under the Prompt Payment Act in the US.¹

Similar legislation is in place in other countries. In the UK, for example, it is controlled by the Late Payment of Commercial Debts (Interest) Act 1998.²

💡 Using a professional invoice template is an easy way to ensure you include the payment terms and late fees. You can download free, professional invoice templates from Wise.

Invoice late fee wording: How to charge interest and late fees (2)

Should you charge invoice late fees?

Late payment of invoices can be a significant problem for cash flow management.

According to research by Sage Group, 13% of invoice payments to US small to medium enterprises (SMEs) are late. Companies in the research spent an average of 15 days per year chasing invoice payments.³

Invoice late fees can motivate customers to pay on time, and compensate the business for any negative effect on the cash flow.

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That said, just because you can charge late fees doesn’t mean you always should. Prevention, of course, is the best strategy. Including the late payment terms clearly on the invoice should provide an incentive for on-time payment.

Whether to charge a customer is a business decision. You should take into account any special circumstances, previous history, and customer relationship.

It’s a good idea to check why payment has not been received before sending a late fee letter. There could be a problem with the invoice, or products and services delivered. The customer may face other circumstances - such as temporary financial problems.

Losing a good customer over a late payment fee may be excessive. It could be better to preserve the relationship and not charge late fees.

If you do charge late fees, however, make them easy to pay. As with the original invoice, you can include payment methods in the late fee notification.

With overseas customers, this should include international payment options. Using a service such as Wise will allow customers to pay in their own currency, with clear exchange rates set at the mid-market rate.

How much interest can you charge on unpaid invoices?

Invoice late fees legal maximum: What is the highest late fee allowed by law?

This is an important question. Just as the terms should be specified on the original invoice, the amount charged must also meet legal requirements.

The maximum fee varies among countries and US states.

  • For example, in California, the maximum rate is 12% per year.⁴
  • New York has a higher maximum of 16% per year.⁵

What is an acceptable late fee for an invoice?

Of course, you do not have to charge the maximum fee. How much to charge is a decision based on the laws that apply in your area, the customer relationship, and the impact of the late payment.

According to research by QuickBooks, many companies choose a monthly fee of 1% to 1.5%.⁶ You could charge less than this range, or more, if local law permits.

Invoice late fee wording: How to charge interest and late fees (3)

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How to calculate late payment interest rate

The legal maximums are specific annual interest rates, but it is usual to charge interest monthly. Hopefully, late payments will not reach a full year!

This monthly rate is the one usually specified in the invoice late payment terms. To calculate the maximum legal permitted, simply divide the annual legal maximum by 12.

As an example, consider the case for California. The annual legal maximum of 12% equates to a monthly maximum of 1%. For an invoice of $1000 that is one month late, this would mean a late payment fee of $10.

Top tips on how to deal with late payments from overseas customers

If you’re going to use late fees, make sure that the calculation of those fees is clear.

In the case of a 1% per month fee, in the example above, the balance due would be $1,010 after one month.

But what if your customer is even later, and after two months the invoice is still unpaid? Is the 1% late fee for the second month going to be applied to the original invoice amount of $1,000 or the accumulated balance of $1,010?

If it’s the latter, you’re charging compound interest. If you want to do this, make sure that compound interest for late fees is allowed in the jurisdictions/countries involved. This is especially vital when doing international business - compound interest is either limited or prohibited in many countries.⁷

Assuming that compound interest is allowed, make sure that your terms spell out the fact that it is indeed compound interest.

Ensure that the policy and rate are understood by your customers by putting this information on your invoices and other correspondence.

Make it easy for international customers to pay you with Wise

Invoice late fee wording can help you charge late fees and get paid. In an ideal world, however, late fees are best avoided.

You can minimize the need to charge late fees by making it easy for customers to pay invoices.

(Video) Progress Invoicing in QuickBooks Desktop

Research from Inc. Magazine shows that companies are 30% more likely to get paid if they offer easy online payment.⁸

For international customers, easy payment includes giving them the option to pay online in their local currency. Wise Business makes this possible.

Create a Wise account to get paid with ease

Wise offers a business account that allows you to get paid in multiple currencies - all to the same account. It also links to payment gateways, such as Stripe, making it even easier to receive payments for your business.

Make a Wise choice and register for free today.

Invoice late fee wording: How to charge interest and late fees (4)

Invoice late fee wording: How to charge interest and late fees (5)
    This piece has been written in collaboration with Esther Friedberg Karp, an esteemed bookkeeper, QuickBooks ProAdvisor, and founder of CompuBooks.
    Esther Friedberg Karp, MBA, is an internationally-renowned trainer, writer, business consultant, and speaker with advanced certifications in both QuickBooks Desktop and QuickBooks Online.
    She has been named twice to the list of Insightful Accountant’s Top 10 QuickBooks ProAdvisors worldwide, with the titles “Top International ProAdvisor” and “Top Trainer/Writer ProAdvisor.”


  1. 5 CFR Part 1315 - PROMPT PAYMENT | CFR | US Law | LII / Legal Information Institute
  2. UK late payment legislation
  3. 1 in 10 invoices paid late - Sage
  4. California Interest Rates Laws
  5. New York Interest Rates Laws
  6. Should you charge late payment fees? Pros and cons | QuickBooks
  7. John Yukio Gotanda, (2004) Oxford U Comparative L Forum 1 at
  8. Online payment research - INC

All sources checked October 7, 2021.

This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date.

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How do you charge a late fee on an invoice? ›

First, include a payment due date on every invoice. This is easy to remember if you use a simple invoice template for freelancers. Then, clearly state your late fee policy. Something as simple as, “*A late fee of [1.5%] will be added to all payments after [date]” is usually enough to encourage timely payments.

How do you explain late fees to customers? ›

Send a late payment letter notifying the customer that their payment is overdue. In your late payment letter, explain when the due date was. List the overdue invoice charges and their new liability. Explain whether their late payment fee will increase if they do not pay within a certain number of days.

Can you legally charge interest on overdue invoices? ›

In short, yes! As a vendor, it's entirely legal for you to charge interest on unpaid invoices. However, the real question is whether your clients are legally obligated to pay it. A vendor should include these details in a contract or statement of work agreement before any work begins.

How much interest can I charge on past due invoices? ›

As mentioned, most businesses charge a flat penalty of 1% to 1.5% of the overdue amount. To calculate a reasonable interest rate, you first have to calculate an annual interest rate and divide that number by 12.

What is a typical late fee percentage? ›

Companies typically assess a 1% to 1.5% late fee. To calculate the interest rate for a late fee, you'll first need to decide on the annual interest rate. Once you have your annual interest rate, divide that by 12. This number will be your monthly rate.

How do you charge interest? ›

Calculations are fairly simple for these types of interest charges. Multiply the invoice amount times the yearly interest rate to determine the yearly interest charges. Divide this amount by the frequency of payment (monthly or daily) and then multiply that number times the number of days or months late.

How do you explain an invoice delay? ›

The invoice was due on [Due Date], and payment is now overdue by [Number of Days Overdue]. Be advised that late payment interest may be applied if we do not receive payment within 30 days. Let us know when we can expect to receive payment for the outstanding invoice. Please find the outstanding invoice attached.

How much should a small business charge for late fees? ›

A common approach to late fees among freelancers and service-based, small business owners is to charge 1.5% interest per month on unpaid invoices.

How do you talk to clients about fees? ›

When you talk about fees with clients, there are five priorities to focus on:
  1. Fairness and clarity are more important than the actual amount. ...
  2. You need to be proactive and raise the topic BEFORE clients ask. ...
  3. The discussion should be specific about what you offer and what it costs.

How much interest can I legally charge? ›

The Basic Rate: The California Constitution allows parties to contract for interest on a loan primarily for personal, family or household purposes at a rate not exceeding 10% per year.

How do you charge interest and late fees on unpaid invoices? ›

For example, if the payment on a $1,500 invoice is 20 days late with a 6-percent interest rate, first divide 20 by 365. Multiply that result by . 06, the interest rate, and finally multiply that result by 1,500, the dollar amount of the invoice. The interest charge is $4.93 for the 20-day period.

How do you calculate late fees for individual customers? ›

First, divide the annual interest rate set in your agreement as a late fee by 12 to determine your monthly interest rate. Next, multiply this monthly rate by the amount due to determine the amount of the monthly late fee. For example, if the annual interest rate is 3%, the monthly interest rate is 0.25%.

How do you negotiate a late fee? ›

If you want to have your late fee removed, you can ask your credit card issuer to get it waived. Whether they accept your request is completely up to their discretion, but if your payment history is good and your payments have been on-time, they are likely to accept.

What is a 20% late fee on $200? ›

If the customer pays 20 days late, charge $1.20 for 20 days, so the total would be $200 plus $24 in finance charges.

What do you write when an invoice is overdue? ›

Include the following details in your overdue invoice letter:
  • Invoice number and date.
  • Amount owing.
  • Payment terms such as late fees.
  • Reminders of previous letters.
  • Instructions for payment (include links in emails)
  • Your contact information.
Mar 28, 2019

How do you ask a client to pay an overdue invoice? ›

Small businesses should begin by following up by email to request the overdue payment from the client. If several attempts to secure payment by email don't work, then follow up with the client by phone. Have a polite conversation about the overdue invoice and attempt to secure payment from the client by phone.

How do you ensure timely payment on an invoice? ›

Consider implementing the following tips to help with ensuring timely payments from your customers.
  1. Send friendly payment reminders.
  2. Research shows that forgetfulness is the top reason bills are paid late. ...
  3. Maintain good relationships.
  4. As a business owner, you know great customer service is key. ...
  5. Offer an installment plan.
Jan 10, 2023

What is the best way to explain a service fee? ›

A service charge, also called a service fee, refers to a fee collected to pay for services that relate to a product or service that is being purchased. In other words, a service charge is an additional charge for the service provided with the purchase of a product or service.

How do you explain a support fee? ›

Support Fee means a fee payable for support which falls outside the scope of the Service Levels Agreement relevant to the service.

How would you respond to client comment your fee is too high? ›

How to Respond Directly to a Price Objection
  1. “This is a great deal, I can reassure you.”
  2. “Our offer is more than competitive. ...
  3. “Hmm, I may have missed explaining something correctly. ...
  4. “Some of our best customers initially thought the same thing, however…”
  5. “Let me just list off what's included with our offer here.”
Jan 26, 2021

How do you tell a customer their payment is overdue? ›

Small businesses should begin by following up by email to request the overdue payment from the client. If several attempts to secure payment by email don't work, then follow up with the client by phone. Have a polite conversation about the overdue invoice and attempt to secure payment from the client by phone.

How do I apologize for a late fee? ›

I request you to kindly consider my request and excuse us for the late payment of fees. I also request you to allow my son to continue to attend classes regularly. Looking forward to your response. Thank you for your time and kind consideration.

How do you handle a late payment on a customer? ›

If a payment is late, don't wait to follow up. Send a quick email, or make a friendly call to find out why payment is delayed. Customers will pay the company demanding payment before they'll pay companies that do nothing. Find out why your customer can't pay on time, and find a solution beneficial to both of you.

How do you tell a customer that they owe money? ›

How to ask for payment from clients
  1. Professional - go straight to the point, don't waste time, and be firm when discussing overdue payments.
  2. Polite - remain calm, do not yell or accuse your client.
  3. Persistent - continue reminding your client in a calm manner, and don't be pushy or aggressive.
Sep 28, 2021

How do you politely ask someone to pay an invoice? ›

How to ask someone to pay you for work
  1. Avoid letting too much time pass from the payment due date. ...
  2. Set up an emailing schedule. ...
  3. Send polite reminders before the due date. ...
  4. Send a polite but direct email on the due date. ...
  5. Firmly remind them when your invoice is overdue. ...
  6. Call them if they still don't pay you.
Sep 15, 2021

How do you professionally say sorry for the late response? ›

How do you say sorry for the late reply?
  1. Apologies for the delayed response.
  2. Sorry for not getting back to you sooner.
  3. I'm sorry for the delay.
  4. Sorry for the late reply.
  5. Please excuse my delayed response.
  6. So sorry for the late response.
  7. I'm sorry I didn't get back to you sooner.
  8. Thank you for your patience.
Dec 20, 2022

What is a professional way to apologize? ›

How to Apologize for a Mistake at Work
  1. Say You're Sorry. Saying the words “I'm sorry” is hard. ...
  2. Admit What Happened. Don't just say you're sorry and leave it there. ...
  3. Say How You'll Fix it Or What You'll Do Next Time. ...
  4. Keep it Short. ...
  5. Be Timely.
Sep 22, 2022

How do you say sorry for the delay professionally? ›

I/We Apologize For The Delay Phrase Examples
  1. I apologize for the delay. ...
  2. I'm sorry for responding so late. ...
  3. I apologize for the delay in completing the project. ...
  4. I'm sorry for the delay. ...
  5. I'm sorry, I'm running a bit behind schedule. ...
  6. I apologize for my tardy reply. ...
  7. I'm sorry for not getting back to you sooner.

What are good reasons for late payments? ›

1. Standard excuses
  • We haven't received the invoice. / We've lost the invoice. ...
  • The company name/address/balance/etc. on the invoice is not correct. ...
  • The computer is down. Ask your customer how often this happens and how they've dealt with it.

What is another word for late payment? ›

not paid on time: overdue payment/fee/bill We need to collect any overdue payments.

How do you collect money from clients who won't pay? ›

But once you understand the reason for the late payment, you can choose the best way to get what your client owes you.
  1. Send Polite Email Reminders. ...
  2. Pick up the Phone. ...
  3. Contact the Billing Department Directly. ...
  4. Cut off Future Work. ...
  5. Send a Final Demand Letter. ...
  6. Hire a Collection Agency. ...
  7. Go To Arbitration or Take Legal Action.


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