Are late payment fees legal, and how to charge?

A client keeps stalling — can you add a late fee or interest? You can, but only if it was agreed in advance. This explains the legality of late fees, how much you can charge, and how to word it so it holds up.

The key: is it in writing?

Whether you can claim a late fee or interest depends almost entirely on whether you wrote it down between you and the client:

A late-payment rate or fee agreed in the contract or on the invoice: you can claim it once overdue — the safest position.
No agreement at all: in most cases you can only claim statutory interest, which is limited and harder to prove.

So the simplest protection is to put the terms in from the very start, rather than scrambling once it’s already overdue.

How much can you charge?

A penalty rate isn’t “the higher the better”. Many jurisdictions cap penalties or allow a penalty that’s far above the actual loss to be reduced — set it absurdly high and it may be void or scaled back. A common approach is a reasonable annualised late-payment rate plus a small fixed late fee.

Common method

The most general method charges interest on the principal by annual rate and days overdue:

late interest = principal × annual rate ÷ 365 × days overdue

If the contract specifies compounding, roll it up daily; you can also add a fixed late fee on top. To estimate the amount, use the late fee & interest calculator.

Note: the calculator gives an estimate. The actual amount you can claim depends on your contract and local law — for larger or disputed sums, consult a professional.

How to word it so it works

Put the following into your contract or invoice terms so you have something to stand on:

Payment deadline (e.g. “within 30 days of invoice”).
Late-payment rate (e.g. “overdue amounts accrue interest at X% per annum”).
Fixed late fee (if applicable).
Consequences of non-payment (pausing service, collections, recovering associated costs, etc.).

Not sure what belongs on an invoice? See what to include on an invoice, or just use the invoice generator.

Better not to reach the late-fee stage

Charging a late fee is a remedy, not a goal — getting paid on time is the best outcome. Duefy follows up early and automatically, so many invoices never get anywhere near needing a penalty calculation.