How late fees are calculated
There are four common ways to charge for late payment, and the calculator supports all of them:
- Monthly interest (most common for freelancers and B2B invoices): fee = invoice amount × monthly rate × (days late ÷ 30). A 1.5% monthly rate on a $2,500 invoice that is 20 days late is $2,500 × 0.015 × 20/30 = $25.
- Annual interest rate (APR): fee = invoice amount × annual rate × (days late ÷ 365). Statutory interest in many countries is expressed this way.
- One-time percentage: a fixed percentage (often 5–10%) added once the grace period passes, regardless of how long the invoice stays unpaid.
- Flat fee: a fixed amount, e.g. $25 or $50, common for small invoices and rent.
This calculator uses simple (non-compounding) interest, which is what most contracts specify and what courts generally expect for ordinary commercial invoices.
What is a reasonable late fee?
In the United States, 1% to 1.5% per month (12–18% per year) is the typical range for business invoices, and many states cap the rate you can charge, so check your state's usury rules. The UK's Late Payment of Commercial Debts Act allows statutory interest of 8% above the Bank of England base rate plus a fixed compensation amount. The EU Late Payment Directive sets a similar reference-rate-plus-8% rule. Whatever rate you use, it must be written into your contract or invoice terms before the invoice is issued – you cannot add a late fee retroactively.
How to add a late fee clause to your invoice
A simple, enforceable line in the notes section of your invoice is enough. For example: "Payment is due within 30 days. Overdue balances are subject to a late charge of 1.5% per month (18% per annum)." Use the payment due date calculator to work out the exact due date to print on the invoice.
Should you actually charge it?
Many freelancers include the clause but waive the fee for good clients who pay a few days late. The clause still does its job: it signals that you take payment seriously and gives you leverage with chronic late payers. Send a polite reminder the day after the due date, a firmer one at 7 days, and quote the accrued late fee at 14–30 days.
Frequently asked questions
Can I charge a late fee if it was not in my original terms?
Generally no. Late fees and interest must be agreed before the invoice is issued, either in a contract or on the invoice itself. Add the clause to all future invoices.
What is 1.5% per month as an annual rate?
18% per year. Multiply the monthly rate by 12. The calculator shows this conversion automatically.
Does the grace period count toward the days late?
No. Days inside the grace period are overdue but not chargeable. The fee is calculated only on the days after the grace period ends.
Is late fee interest compounded?
Most invoice terms use simple interest, and that is what this calculator uses. Compounding monthly would increase the fee slightly but is unusual for ordinary invoices.