Late Fee Calculator: How to Calculate Late Fees on Invoices (2026)
Late fees are one of the most effective tools for encouraging on-time payment—but only if you calculate and apply them correctly. Charge too little and clients won't care. Charge too much and you could violate usury laws. This guide walks you through exactly how to calculate late fees on invoices, with formulas, real examples, and legal guidelines for 2026.
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Open Free Late Fee CalculatorTypes of Late Fees on Invoices
There are three main approaches to calculating late fees. The right one depends on your business, your client relationships, and your local laws.
1. Percentage-Based (Monthly Interest)
The most common approach. You charge a percentage of the outstanding balance for each month (or part of a month) the invoice is overdue.
Typical rate: 1% to 2% per month (12%–24% annually)
Best for: Ongoing client relationships, larger invoices, B2B services
2. Flat Fee
A fixed dollar amount added to the balance when the invoice becomes overdue. Simple and easy to understand.
Typical rate: $25 to $50 per occurrence
Best for: Small invoices, one-time clients, straightforward billing
3. Daily Interest (Per Diem)
Interest calculated daily on the outstanding balance. The most precise method but harder to explain to clients.
Typical rate: Annual rate ÷ 365 per day
Best for: Large invoices, formal contracts, construction and professional services
How to Calculate Late Fees: Formulas & Examples
Formula 1: Monthly Percentage Late Fee
Late Fee = Invoice Amount × Monthly Rate × Months Overdue
Example:
- Invoice amount: $5,000
- Monthly late fee rate: 1.5%
- Days overdue: 45 (1.5 months)
Calculation: $5,000 × 0.015 × 1.5 = $112.50
Total owed: $5,000 + $112.50 = $5,112.50
Formula 2: Flat Fee
Total Due = Invoice Amount + Flat Fee
Example:
- Invoice amount: $800
- Flat late fee: $35
Total owed: $800 + $35 = $835.00
Note: Some businesses apply the flat fee once, while others apply it for each billing cycle the invoice remains unpaid.
Formula 3: Daily Interest (Per Diem)
Late Fee = Invoice Amount × (Annual Rate ÷ 365) × Days Overdue
Example:
- Invoice amount: $10,000
- Annual interest rate: 18%
- Days overdue: 30
Daily rate: 18% ÷ 365 = 0.0493% per day
Calculation: $10,000 × 0.000493 × 30 = $147.95
Total owed: $10,000 + $147.95 = $10,147.95
Quick Reference: Late Fee Amounts by Invoice Size
Use this table as a quick reference for common late fee amounts at a 1.5% monthly rate:
| Invoice Amount | 30 Days Late | 60 Days Late | 90 Days Late |
|---|---|---|---|
| $500 | $7.50 | $15.00 | $22.50 |
| $1,000 | $15.00 | $30.00 | $45.00 |
| $2,500 | $37.50 | $75.00 | $112.50 |
| $5,000 | $75.00 | $150.00 | $225.00 |
| $10,000 | $150.00 | $300.00 | $450.00 |
| $25,000 | $375.00 | $750.00 | $1,125.00 |
Based on 1.5% monthly simple interest. Actual amounts vary based on your rate and calculation method.
Legal Limits on Late Fees by State
Before setting your late fee policy, understand the legal limits in your jurisdiction. Most US states have usury laws that cap the maximum interest rate you can charge. Here are some common examples:
Important Legal Disclaimer
This information is for educational purposes only. Laws change frequently and vary by jurisdiction, contract type, and business structure. Always consult with a local attorney to ensure your late fee policy complies with applicable laws in your state or country.
Sample State Usury Limits (US)
Rates as of 2026. B2B contracts may have different limits than consumer contracts. Verify current rates.
Safe Late Fee Ranges for Most Jurisdictions
- 1% per month (12% annually) — Safe in nearly all US states and most countries. A solid default choice.
- 1.5% per month (18% annually) — The most popular rate among freelancers and small businesses. Legal in most states but verify yours.
- 2% per month (24% annually) — More aggressive. May exceed limits in some states. Verify before using.
- Flat fee of $25–$50 — Generally safe as long as it's "reasonable." Courts may void excessive flat fees.
How to Add Late Fees to Your Invoices
Simply charging late fees isn't enough—you need to set expectations upfront and document everything properly. Here's the step-by-step process:
Include Late Fee Terms in Your Contract
Before starting work, ensure your contract or service agreement states the exact late fee rate, when it kicks in (e.g., "15 days after the due date"), and how it's calculated. Get the client's signature.
State the Policy on Every Invoice
Add a line like: "Late payments subject to 1.5% monthly interest after 15 days past due." This serves as a reminder even if it's already in the contract.
Send a Reminder Before Applying the Fee
When an invoice becomes overdue, send a reminder that the late fee will apply if payment isn't received by a specific date. This preserves the relationship and gives the client a chance to pay.
Issue an Updated Invoice with the Late Fee
Once the grace period expires, send a revised invoice that shows the original amount plus the calculated late fee as a separate line item. Never just increase the total without explanation.
Document Everything
Keep records of the original invoice, all reminders sent, the date the late fee was applied, and the calculation used. This protects you if the client disputes the charge.
Late Fee Best Practices
DO: Give a Grace Period
A 7–15 day grace period after the due date before late fees kick in shows good faith and accounts for processing delays. Most courts look favorably on reasonable grace periods.
DO: Be Consistent
Apply the same late fee policy to all clients. Selective enforcement undermines your credibility and could create legal issues if a client claims discrimination.
DO: Offer Early Payment Discounts as an Alternative
Instead of just punishing late payment, reward early payment. "2% discount if paid within 10 days" achieves the same goal with a positive framing.
DON'T: Charge Compound Interest Without Legal Advice
Simple interest (charging on the original amount) is safer than compound interest (charging interest on accumulated interest). Some jurisdictions prohibit compound interest on business invoices.
DON'T: Surprise Clients with Late Fees
If late fees weren't mentioned in the contract or on the original invoice, don't add them retroactively. Courts typically won't enforce fees that weren't agreed upon in advance.
DON'T: Set Unreasonably High Fees
Courts can void "penalty" clauses that are unreasonable. Stick to standard rates (1–2% monthly) and ensure your fees reflect actual damages, not punishment.
Sample Late Fee Language for Invoices & Contracts
Copy and customize these templates for your own invoices and contracts:
For Invoices (Short Version):
"Payment is due within 15 days of the invoice date. A late fee of 1.5% per month will be applied to balances remaining unpaid after the due date."
For Contracts (Detailed Version):
"All invoices are due within [15/30] days of the invoice date ('Due Date'). If payment is not received within [7] days after the Due Date ('Grace Period'), a late fee of [1.5%] per month (or the maximum rate permitted by law, whichever is lower) will be assessed on the outstanding balance from the Due Date until payment is received in full. Client agrees that [Your Company] reserves the right to suspend services and withhold deliverables until all outstanding balances, including late fees, are paid. This late fee provision constitutes liquidated damages and not a penalty."
For Invoices with Flat Fee:
"A $35 late fee will be added to invoices not paid within 15 days of the due date, plus 1.5% monthly interest on the outstanding balance for each additional month overdue."
Frequently Asked Questions
How do I calculate a late fee on an invoice?
Multiply the invoice amount by your monthly late fee rate, then multiply by the number of months overdue. For example: $3,000 invoice × 1.5% × 2 months = $90 late fee. For daily interest, divide the annual rate by 365 and multiply by the number of days overdue. Use our free late fee calculator for instant results.
What is a reasonable late fee for an invoice?
The industry standard is 1% to 1.5% per month (12%–18% annually). This is considered reasonable in most jurisdictions and is high enough to motivate payment without being punitive. For smaller invoices, a flat fee of $25–$50 is common.
Can I charge late fees without a contract?
It's much harder to enforce late fees without a signed agreement. If your late fee policy is stated on the invoice and the client pays without objecting, some courts may consider it accepted. However, a signed contract is always the safest approach.
Should I waive late fees for good clients?
Occasionally waiving late fees for a long-term client who has a genuine reason for a one-time delay is good business practice. However, if you waive fees consistently, clients learn they can pay late without consequences. Use discretion and document any waived fees.
How do late fees work for international invoices?
For international invoices, the late fee policy is typically governed by the law specified in your contract. In the EU, B2B statutory interest is the ECB rate + 8%. In the UK, it's the Bank of England rate + 8%. Always specify which jurisdiction's law applies in your contract.
Start Charging Late Fees the Right Way
Late fees aren't about punishing clients—they're about protecting your cash flow and incentivizing professional behavior. When communicated clearly and applied fairly, they dramatically reduce late payments and the stress that comes with chasing money.
Use the formulas and templates in this guide to set up a compliant late fee policy today. And if you want to automate the entire process—from invoicing to reminders to late fee calculations—PrestoBills handles it all so you can focus on your business, not your accounts receivable.
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