Overdue invoice fees: what to charge and when

Key takeaways

• An invoice is overdue the day after its due date, unless your terms give a grace period.
• You can charge a late fee only if the client agreed to it in writing before the work started. 1% to 1.5% a month is common, and some states cap it.
• Work the fee out as balance × annual rate ÷ 365 × days late, or as a flat monthly percentage. Use whichever your terms name.
• A late fee notice quotes the invoice number, the amount, the days overdue, your fee clause word for word, and how to pay.
• Name the fee at 14 days, apply it at 30, and send a formal letter at 60.

This is the fees part of chasing an invoice. For the reminder emails themselves, see reminder templates for 7 to 60+ days, and for the document that goes with them, the overdue invoice statement template.

When does an invoice become overdue?

The day after its due date, if it has not been paid. An invoice dated March 1 on Net 30 terms is due March 31 and overdue on April 1. There is no standard grace period. Unless your terms give one, the due date is the deadline.

Your terms set the date

Your payment terms decide when the clock starts: the invoice date, the delivery date, or the date a milestone is approved. Put them on every invoice. “Payment on completion” gives you nothing to point to, because nobody agreed when completion was.

Net 30 or due on receipt

Net 30 gives the client 30 days from the invoice date. Due on receipt means now. Due on receipt gets paid faster but can read as abrupt to a client you work with every month, so many studios settle on Net 15 or Net 7 for retainers. Whichever you choose, use it for every client, so you are never working out whose invoice is late under which rule.

Can you charge interest on an overdue invoice?

Yes, if the client agreed to it before the work was done. The rate has to be in your contract, your proposal or the invoice terms the client accepted. Without that, you generally cannot add a fee afterwards. Some states also cap the rate you can charge, so check yours before you set one.

The formula, with a worked example

Late fees are almost always simple interest on the unpaid balance:

Fee = balance × annual rate ÷ 365 × days late

A $5,000 invoice at 1.5% a month, which is 18% a year, 30 days late:

Plenty of studios use a flat monthly charge instead: 1.5% of $5,000 is $75 for each month overdue. Either method is fine, as long as your terms say which one you use.

State limits

The rules differ by state, and a rate that is fine in one may be over the limit in another. The safe choice is a modest rate, 1% to 1.5% a month, written into the contract and repeated on every invoice. If you bill clients in several states, or the amounts are large, ask an accountant or a lawyer once and use their answer everywhere.

Put the fee in your terms before you invoice

State the rate, the grace period and the method in your proposal or contract, then repeat it on every invoice: “Interest of 1.5% a month applies to balances unpaid 15 days after the due date.” A fee the client saw before they signed is bookkeeping. A fee they see for the first time in a reminder is an argument.

What should a late fee notice include?

Enough that the client cannot be surprised. Five things, in this order:

• the invoice number and its original due date;
• the balance, and the fee worked out so far;
• the days overdue, as a number: “17 days past the 15th” rather than “some time”;
• your fee clause, quoted: “under the 1.5% monthly late fee in section 4 of our agreement”;
• how to pay, and the date before the fee grows again.

Keep the tone flat. A notice that reads like a threat invites a dispute. One that reads like arithmetic gets paid.

A late fee you collect is income, so record it with the rest of your revenue. A fee you waive or never collect is not.

How do you word the messages without souring the relationship?

Decide the schedule in advance and send the same messages every time. Each one then reads as procedure rather than annoyance. The examples below are for a $3,800 invoice with a 1.5% monthly late fee.

First reminder, at 7 days: assume it got lost

Hi Sam, Invoice #1042 for $3,800 was due on the 14th. In case it slipped past your inbox, here it is again. Let me know if anything needs sorting on your side.

No fee, no apology. You are giving the client an easy way out, which is why they answer it.

Second reminder, at 14 days: name the date and the fee

Invoice #1042 is now 14 days overdue. Under the terms you signed, late payment adds 1.5% a month from the due date, which is $26.24 so far. I’d rather waive that than chase it, so if payment arrives by Friday the 21st, I’ll take it off.

This is the reminder most owners put off, because it is the first one that talks about money. Send it anyway. It states the fact, prices the delay, and offers a deadline that costs the client nothing. The pushy feeling comes from being vague, not from being firm.

Final notice, at 30 days: apply the fee and say what comes next

Invoice #1042 is now 30 days overdue, and the late fee under our agreement is $56.22. The total due is $3,856.22. If payment has not arrived by [date], I’ll send a formal notice and pause work on your account.

Then do what it says. A final notice you never act on teaches the client to ignore the first two. If your contract gives you no right to pause work, leave that part out.

Does a “past due” stamp help?

A little. A red “past due” on the invoice PDF or the client’s view of it makes it harder to overlook in a full inbox. It will not collect a three-week-old invoice on its own. That happens when the client can see the amount, the due date and the next step clearly.

How do you spot a fake overdue invoice?

Fake “final notice” invoices work on small businesses because chasing payment is normal for you, and a bill for something you barely remember feels plausible. The FTC warns businesses about exactly this.

Warning signs

• A sender address that is almost right, such as yourclient-co.com instead of yourclientco.com.
• Pressure to pay today.
• New bank details on a supplier you already pay.
• A vague description instead of real line items.
• An attachment you did not expect.

Check before you pay

Never use the contact details on the invoice itself. Call the person you deal with on a number from your own records, and compare the bank details with the last payment you made. If the details have changed, treat it as fraud until they confirm it. A two-minute call costs less than a transfer you cannot get back.

When should fees take over from reminders?

On a schedule you set before anything is late:

• Day 7: a friendly reminder.
• Day 14: a reminder that names the fee.
• Day 30: apply the fee and send a final notice.
• Day 60: a formal letter, and pause work if your contract allows it.
• After the letter’s deadline: a collections agency or small claims court.

Every step names the invoice number and the amount due.

Know who has paid

The schedule only works if you can see, at a glance, which client is where. A spreadsheet manages a handful of clients and breaks after that. In Projectous, tracked hours become invoice lines, and asking who owes you money lists every client with past-due invoices and how long the oldest has waited. It will not chase anyone for you, and it does not work out late fees. You still decide when to escalate.

How do you stop invoices going overdue at all?

Most late invoices come from the same three gaps.

Hours that were never recorded, so the invoice goes out late and lands badly. Track time as the work happens and bill from it.

Terms that differ from client to client. Put the same payment terms, late fee wording and due dates on every proposal and every invoice.

Follow-ups that only exist in your head. Keep one list of what is overdue across every client, and look at it weekly.

The goal is that chasing an invoice takes minutes, not an afternoon of unbilled time.

Questions people ask

Is it unprofessional to charge late fees?

No, if the client agreed to them before the work started. A modest rate written into the contract and repeated on each invoice reads as standard bookkeeping. What damages a relationship is surprise: a fee the client never saw in writing.

How much interest can I legally charge?

It depends on the state, and some cap it. 1% to 1.5% a month, stated up front, is a common and defensible default. If your contract says nothing, you generally cannot add a fee later.

Are late fees taxable?

A fee you collect is income, recorded with the rest of your revenue. A fee you waive or never collect is not.

What is a polite way to remind a client?

Three sentences: the invoice number and amount, the invoice attached again, and an easy way out in case it went astray. No apology and no filler. Being specific is what keeps it polite.

Can I pause work for a client who has not paid?

If your contract says so. Say it in the final notice, give a date, and then follow through. A pause you announce and never make teaches the client to ignore the next reminder.