Late payment fees: how they work.
Late payment fees give clients a reason to pay on time and compensate you when they don’t. They have to be stated in your terms up front to be enforceable. Here’s how late fees work in practice, what rates are reasonable, and how to put them on your invoices without sounding aggressive.
How late fees work
State them up front
Late fees must be in your payment terms before the invoice is issued.
A reasonable rate
1–2% per month is common; the UK has a statutory rate plus 8%.
Flat fee or percentage
Some businesses charge a flat fee; others a percentage of the outstanding balance.
A polite chase first
Most clients pay after a friendly reminder, with no fee needed.
How to add late fees to your invoice
Write the policy
"A late-payment fee of 1.5% per month applies to overdue balances."
Put it on every invoice
Add the line to your payment terms at the bottom.
Send a reminder first
A polite reminder usually clears it before you apply a fee.
Apply the fee on the next invoice
Add a "Late payment fee" line on the follow-up invoice.
Escalate calmly
If the fee doesn’t prompt payment, follow your own escalation process.
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Frequently asked questions
Can I charge late fees on overdue invoices?
Yes, provided your payment terms state the late fee before the invoice is issued. Mentioning it after the fact is generally not enforceable; making it part of your standard terms is.
What is a reasonable late payment fee?
Between 1% and 2% per month of the outstanding balance is common in many countries. In the UK, the Late Payment of Commercial Debts Act allows the Bank of England base rate plus 8% plus a fixed compensation amount per invoice.
Flat fee or percentage?
A flat fee (e.g. £20 per overdue invoice) is simple. A percentage (e.g. 1.5% per month) scales with the amount owed. Either is fine — pick one and state it in your terms.
Should I charge late fees on every late invoice?
Not necessarily — a polite reminder is usually enough. Use late fees consistently when you do apply them, so clients know the rule isn’t selective.
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