Late payment fees: what you can charge and how to word it
A plain-English guide to late payment fees on invoices: whether you're allowed to charge one, how much is reasonable, and exactly how to word it clearly.
A late payment fee sounds like the kind of thing that needs a lawyer to word properly. Mostly it doesn't. For most small businesses it's one clear line on the invoice, applied consistently, that quietly nudges slow payers to move you up their list. The tricky part isn't the wording — it's knowing what you're actually allowed to charge, and that depends on where you and your client are based.
Why bother charging a late fee at all
In practice, very few clients ever actually pay a late fee — most pay before it kicks in, precisely because it's there. Its real job is as a deterrent, not a revenue line. A client who's choosing which of their suppliers to pay first this week is more likely to put you near the top if there's a cost attached to leaving you till last.
It also does something less obvious: it makes your payment terms feel real. "Payment due within 14 days" is easy to treat as a soft suggestion. "Payment due within 14 days, 2% fee applies after that" reads as a business that takes its own terms seriously — which, in turn, tends to make clients take them seriously too.
What you can actually charge
This is the part that genuinely varies by country, so treat the following as a starting point for a conversation with your accountant or a local small business advisor, not as legal advice.
New Zealand
There's no blanket law in New Zealand that automatically entitles a business to charge a late payment fee on a commercial invoice — it generally needs to be something you've agreed with the client upfront, ideally in writing (a quote, contract, or your standard terms they've seen before the job started). As a rule of thumb, a modest flat fee or a small percentage, stated clearly and applied the same way to every client, tends to be treated as reasonable. Charging something that looks punitive rather than a genuine reflection of the cost of chasing late payment is more likely to be challenged. Check the specifics with your accountant before you rely on it.
Australia
Similar picture: a late fee on a B2B invoice generally needs to be based on something the client agreed to, whether that's your written terms, a signed contract, or terms referenced clearly on the quote. Some industries and government contracts have their own rules layered on top. A small, consistent percentage or flat charge — disclosed before the work starts, not invented after the due date passes — is the safer pattern. Again, worth a quick check with your accountant or a small business advisor, since it can depend on your state and the nature of the contract.
United Kingdom
The UK is the one place with a well-known statutory backing for this: businesses have a recognised right to claim interest and compensation on late commercial payments, on top of whatever you'd otherwise be owed. Most small businesses still find it simpler to just state a clear late fee or interest rate on the invoice itself rather than relying on clients to know the statutory position — a number they can see is a number they act on. If you want to lean on the statutory right instead of (or as well as) your own stated terms, it's worth a quick conversation with your accountant to get the current rate and compensation amount right, since both can move over time.
Everywhere else
If you're invoicing internationally or in a country not covered above, the safe default is the same everywhere: agree the fee in writing before the job starts, keep it modest and consistent, and don't treat "the invoice says so" as a substitute for the client having actually seen and accepted it beforehand.
How to decide on a fee that's fair
There's no single right number, but a few patterns hold up well in practice:
- A flat fee (say, a set dollar amount) is simple to explain and easy for a client to check against the invoice — good for smaller, similar-sized jobs.
- A small percentage (commonly somewhere in the low single digits) scales naturally with the invoice size, which feels fairer on both very small and very large jobs.
- Applied once, after a grace period — for example, a week past the due date rather than the day it's technically late — avoids penalising a client who was simply a day or two behind for an understandable reason.
- The same fee for every client removes any awkwardness about who gets charged and who doesn't, and makes it far easier to defend if anyone ever questions it.
Whatever you land on, resist the urge to make it aggressive. The goal is a nudge, not a penalty that damages a relationship with an otherwise good client over a payment that was a week late.
Wording it on your invoice
Keep it short, and put it somewhere the client will actually see it — near the totals or your standard footer, not buried in fine print:
- "A 2% late fee applies to payments received more than 7 days after the due date."
- "Overdue invoices are subject to a $25 late payment fee."
- "Interest applies to payments received after the due date, in line with our standard terms."
The wording matters less than making sure the client saw it before they agreed to the job — ideally on the quote as well as the invoice, so it's never a surprise raised for the first time when you're chasing an overdue payment.
When to actually apply it
Most small businesses are better off treating the fee as a last resort rather than something to fire off the moment a due date passes. A polite reminder on the due date, a firmer one a week later, and only then a note that the late fee now applies tends to preserve the relationship while still giving the term teeth. Automatic reminders sent on your behalf make this far less awkward, since it's a system doing the nudging rather than you personally.
Put it on the invoice and let the system do the rest
Once you've settled on a fee, the win isn't the number itself — it's stating it clearly and applying it the same way every time. InvoiceCharlie lets you set a standard late fee once, so it's shown automatically on every invoice and applied consistently without you having to remember. For the rest of getting paid on time in the first place — choosing sensible terms and following up before it ever gets to a late fee — see payment terms explained and how to get paid faster. Need to send a one-off invoice with a late fee noted right now, no account required? The free invoice generator will have one ready in a couple of minutes.