A Client Is 60 Days Late. What Can You Actually Charge Them?

The honest answer to "what can I charge them" is a question back: what does the signed agreement say, and what does your state let you enforce? Those two set the ceiling, and nothing you write on an invoice after the work is done moves it. It is why a freelancer who adds a 5% penalty to an angry invoice in month three usually collects nothing, while one who put 1.5% per month into a one-page agreement in week one usually collects — not because the fee is large, but because it was agreed to.

The fee has to exist before the work does

A late fee is a contract term. It binds the client because they agreed to it, the same way the price does. Propose it afterwards and you are asking a favour of someone who is already not paying you.

Three things make the clause work. It has to be in the document the client accepted — the signed agreement, the statement of work, or the terms a purchase order incorporates; terms that first appear on the back of an invoice are the version most easily argued away. It has to state the rate, the period, and when the clock starts: "1.5% per month on balances more than 30 days past due" is enforceable-shaped, "late fees may apply" is not. And it has to be applied consistently — waiving it for two years and invoking it in month twenty-five invites the argument that you waived it by course of dealing.

If your client is a federal agency, none of this is yours to draft: the Prompt Payment Act (31 U.S.C. §§ 3901–3907) and 5 C.F.R. Part 1315 make the agency pay interest automatically on late invoices, at a rate Treasury publishes twice a year.

1.5% a month is 18% a year, and the difference decides whether it is legal

A monthly percentage looks modest; the annual one looks like a credit card. They are the same number in different clothes — and state usury and interest statutes are written in the annual form, so that is the form you must convert to before you can tell whether your fee is inside the line. Three conversions matter, and they disagree:

The invoice late fee calculator uses the day-count convention throughout — a 30-day month on a 365-day year — which is why 1.5% per month returns 18.25% rather than a flat 18%: a 30-day period is slightly shorter than an average month of 30.42 days, so the same monthly rate annualises a fraction higher. The fee itself accrues on that same convention, so the two numbers on the page cannot drift apart. That quarter-point is trivial in dollars and occasionally decisive in law, because whether a statute measures a simple or an effective rate can determine which side of a cap 2% per month lands on.

What that cap is, we cannot tell you, and neither can anyone quoting one national figure. Enforceable maximums live in each state's own interest and usury statutes, and states differ on all of it: the cap, whether commercial accounts differ from consumer ones, whether a "late fee" counts as interest or as liquidated damages, and what happens when you exceed it. That last point is why it matters — in some states an overreaching clause is reduced to the legal rate; in others the interest is forfeited outright. Read your state's statute, or ask a lawyer licensed there.

One federal simplification helps: the Truth in Lending Act and Regulation Z generally do not reach credit extended primarily for business purposes, so a business-to-business invoice term is governed by state contract and interest law, not federal disclosure rules. If your client is an individual buying for personal use, your state's consumer-protection law applies instead, and it is stricter.

One invoice, carried all the way through

Here is the case the late fee calculator loads by default: a $5,000 invoice, a 1.5% per month term, 45 days past due, against a business doing $120,000 a year with an average payment delay of 30 days and three chronically late clients.

The tool accrues pro rata daily: it reads "per month" as one 30-day period and charges 1.5% × 45 ÷ 30, which is where $112.50 comes from. Your contract may say something else, and its wording decides — not the arithmetic. Per completed month is $75.00; "or part thereof" has started a second period, so $150.00; monthly compounding is $112.92. At 30 and at 60 days the completed-month and daily readings converge — both give $150.00 at 60 days, where compounding gives about $151 — so it is the in-between cases that generate arguments. Pick a wording and write it down.

The fee is not the money

The fee on this invoice has accrued to $112.50 at 45 days — $75 of that in the first 30-day period. Your carrying cost for financing a 30-day delay at a 6% cost of capital is $24.66, so period for period the fee recovers about three times the cost of the money. Fine.

But a full year of fees from all three problem clients is $450 — 0.38% of $120,000 of revenue. The bad-debt line the same tool carries is $200 a month, $2,400 a year — a flat 2%-of-revenue placeholder rather than a measurement, so replace it with your own write-off history the moment you have one. Even as a placeholder it is more than five times the entire fee income. Run your own figures through the late fee calculator and the shape holds at almost any revenue level, because both sides scale off the same denominator.

That ratio is the finding. Late fees are not a revenue line, and raising the percentage will not make them one. They are a deadline with a consequence attached — a behavioural instrument. Judge yours by whether invoices arrive faster, not by what the fee column totals in December. And note which client the arithmetic says to worry about: the one who eventually pays late costs you $25 a month; the one who never pays costs you the whole $5,000. A fee you do collect is ordinary business income, reported in gross receipts on Schedule C.

What actually gets invoices paid

Ranked by exposure removed, not by satisfaction.

A deposit. Thirty percent of that $5,000 job is $1,500 collected before work starts — twenty times the late fee, and the only lever here that limits your loss if the client vanishes. Price the work properly first with the freelance hourly rate calculator; a deposit is easier to hold when the number behind it is defensible.

Milestone billing. Splitting $5,000 into three staged invoices turns one 45-day exposure on the full amount into three shorter exposures of about $1,667 — worst case falls to one unbilled stage.

A stop-work clause. "Work pauses on any balance more than 15 days past due and resumes on payment." The leverage is the unfinished work, not the fee — and it is the term that gets an invoice escalated inside the client's company, because someone over there now has a deadline problem too.

Net 15, addressed to whoever processes payments. A large share of "late" invoices are parked with someone who cannot approve them.

What annoys clients without moving money: raising the percentage, adding the fee retroactively, and sending a fourth reminder to someone who already said it went to accounts payable.

FAQ

My contract says nothing about late fees. Can I charge one on a 60-day-old invoice?

You can ask, and some clients pay to keep the relationship. You generally cannot enforce it, because there was no agreed term. If the debt is litigated, most states apply a statutory legal rate of interest rather than a rate the creditor invented afterwards. Fix the contract for the next client; for this one, chase the $5,000, not the $75.

Is 1.5% per month legal in my state?

There is no national answer, and any article giving you one figure for all fifty states is guessing. Enforceable maximums sit in each state's interest and usury statutes, differ between commercial and consumer accounts, and differ on whether a late fee counts as interest at all. Read your state's statute — and compare in annual terms, because 1.5% per month is 18% to 19.56% a year depending on convention.

The client says the fee is an unenforceable penalty. Are they right?

They are raising a real doctrine: courts in most states will not enforce a contractual charge that functions as punishment rather than a reasonable estimate of the harm caused. A rate in the ordinary commercial range, compensating you for the time value of money and the cost of chasing payment, is defensible on that ground. A flat 10% surcharge on day 31 is much harder to defend — one reason the 1–2% monthly standard sits where it does.

Should I offer an early-payment discount instead?

They are different instruments; do both. A 2/10 net 30 discount — 2% off for payment within 10 days — costs $100 on a $5,000 invoice to pull payment forward about 20 days, which annualises to roughly 36.5%: worth it only if the cash gap is real. The discount rewards clients who were going to pay anyway; the late fee addresses the ones who were not.

Sources

• IRS Publication 334, Tax Guide for Small Business — gross receipts and the cash method on Schedule C
• Prompt Payment Act, 31 U.S.C. §§ 3901–3907, and 5 C.F.R. Part 1315 — mandatory interest on late federal-agency payments, at a rate Treasury's Bureau of the Fiscal Service publishes semiannually
• Truth in Lending Act, 15 U.S.C. § 1603 — the exclusion for business-purpose credit
• Your state's interest and usury statutes — the only authority on your enforceable ceiling, and on the legal rate when a contract is silent

This is not legal or financial advice. What you may charge is governed by your contract and your state's law.