Late Payment Fee: What You Can Actually Charge in the US, UK and EU

Almost every invoice template has a late payment fee line on it. Almost none of them get paid.

That is not because clients are dishonest. It is because a late payment fee only works when three things are true: it was agreed before the work started, it is within what the law allows where you are, and you are actually willing to apply it.

Here is what you can charge in the US, the UK and the EU, how to calculate it, and how to make it something clients pay rather than ignore.

The late payment fee rule that comes before everything else

A late payment fee only works if it was in the contract first.

If your agreement does not mention late payment fees, adding one to an overdue invoice is not a fee — it is a request. The client can decline it and still owe only the original amount.

The exception is the UK and EU, where B2B late payment interest is a statutory right even without a clause, which we come to below. Everywhere else, and for consumers almost everywhere, it comes down to what was agreed in writing before you started.

So the first fix is not the invoice. It is the one line in your terms that says what happens when payment is late.

What you can charge in the United States

There is no single federal rate for business-to-business late payment fees. What you can charge comes down to your contract, and then to the usury limits of the relevant state, which cap how much interest can be charged.

In practice, most US service businesses use 1% to 1.5% per month on the outstanding balance, which works out at 12% to 18% a year. That is common enough to be unremarkable to clients, and comfortably inside most state limits.

Three things to get right:

• State law governs, not your preference. Usury caps vary by state and by whether the debt is commercial or consumer. If you work across states, say in your contract which state’s law applies.
• Say it per month, not per year. “1.5% per month” is clear. “18% APR” invites an argument about how it was calculated.
• Consumer clients are different. Charging individuals rather than businesses brings consumer protection rules into play, and the limits are tighter.

If you invoice US federal government agencies, the Prompt Payment Act is a separate regime: interest accrues automatically on late payments at a rate the Treasury sets, without you having to ask.

What you can charge in the United Kingdom

The UK is the most generous of the three, and most small businesses never use it.

Under the Late Payment of Commercial Debts (Interest) Act 1998, on business-to-business invoices you have a statutory right to:

• Interest at the Bank of England base rate plus 8% on the overdue amount
• A fixed compensation sum on top, by debt size
• Reasonable debt recovery costs above that fixed sum, if they exceed it

Size of the overdue debt	Fixed sum you can claim
Under £1,000	£40
£1,000 to £9,999.99	£70
£10,000 or more	£100

Two details that matter. The fixed sum is per invoice, not per client, so three overdue invoices means three fixed sums. And this applies even if your contract says nothing about late payment — it is a right, not a clause.

If no payment terms were agreed, the default is 30 days from the later of the invoice date or delivery.

The base rate moves, so check the current Bank of England rate before you calculate anything.

What you can charge in the European Union

The EU runs on the same principle as the UK, because the UK rules came from the same directive.

Under Directive 2011/7/EU on combating late payment in commercial transactions, on B2B invoices you are entitled to:

• Interest at the relevant central bank reference rate plus at least 8 percentage points
• A minimum of €40 in recovery compensation per invoice, automatically
• Reasonable costs above that where you incurred them

Member states implement the directive in national law, so the exact reference rate differs country to country. The floor does not — a clause trying to talk you below it is unenforceable.

Default payment terms are 30 days, extendable to 60 by agreement, and beyond 60 only where it is not grossly unfair to the supplier.

How to actually calculate it

The arithmetic is simpler than people expect. Daily interest, multiplied by days late.

Take a £6,000 invoice, 40 days overdue, with a Bank of England base rate of 4%. Your statutory rate is 4% + 8% = 12%.

• Annual interest: £6,000 × 12% = £720
• Daily interest: £720 ÷ 365 = £1.97
• 40 days late: £1.97 × 40 = £78.80
• Plus the fixed sum for a debt in that bracket: £70
• Total now owed: £6,148.80

A US contract at 1.5% per month is even simpler: 40 days is roughly 2% of the balance, so about $120 on a $6,000 invoice.

Two rules keep you out of trouble. Charge simple interest, not compound, unless your contract explicitly says otherwise. And start the clock the day after payment was due, not the invoice date.

Making the fee something clients actually pay

Here is the uncomfortable part. Most late payment fees are never collected, and the reason is almost never the law. It is that the supplier is afraid of the conversation.

Four things change that.

Put the number on the invoice before it is late. Not in the terms PDF nobody opened — on the invoice itself, in the footer: “Payment due 30 days from invoice date. Overdue amounts carry interest at 1.5% per month.” A client who reads that at day one is not surprised at day forty.

Apply it automatically, not as a threat. The businesses that collect late payment fees are the ones where the fee simply appears, the same way a bank charge does, without an argument attached. The businesses that never collect are the ones where the fee is announced as a warning and then quietly dropped.

Send a statement, not an accusation. “Invoice 1042 is now 40 days overdue. Interest of £78.80 and the statutory £70 recovery sum have been added, bringing the balance to £6,148.80. Payment link below.” No adjectives. Numbers are harder to argue with than feelings.

Be willing to waive it — once, and deliberately. Waiving the fee for a good client who had a genuinely bad month costs you nothing and buys loyalty. Waiving it every time teaches everyone that the number on your invoice is decoration.

When a late payment fee is the wrong tool

Three situations where adding interest makes things worse, not better.

When the invoice is disputed. If the client thinks the work was wrong or incomplete, interest does not resolve that — it gives them a second grievance. Settle the dispute first, then deal with the lateness.

When your own paperwork is weak. No signed scope, no agreed terms, vague deliverables. Adding a fee invites scrutiny of a file that will not survive it.

When the client genuinely cannot pay. Interest on a balance someone cannot clear just grows a number neither of you will ever see. A payment plan recovers more money than a growing debt does.

For everything else — a solvent client who has simply put you at the bottom of the pile — a late payment fee applied calmly and consistently is the single most effective change most small businesses can make to their cash flow.

Where this fits in your paperwork

A late payment fee clause only does its job when the rest of the invoice is doing its job too. If you are tightening this up, our guide to writing an invoice properly covers the document itself, and the net 30 payment terms guide explains how the due date is counted — which is what the whole calculation hangs on. When an invoice goes quiet rather than disputed, the follow-up email templates usually get it paid before any fee is needed.

Frequently asked questions

What is a reasonable late payment fee?
In the US, 1% to 1.5% per month is standard and rarely questioned. In the UK and EU the statutory rate — base or reference rate plus 8% — is both reasonable and legally backed.

Can I charge a flat late payment fee instead of interest?
Yes, if your contract says so and the amount is a genuine reflection of your costs rather than a penalty. Disproportionate flat fees can be struck out, so many businesses use a small flat fee plus monthly interest.

Can I add a late payment fee if my contract does not mention one?
Not in the US. In the UK and EU, statutory interest on B2B invoices applies whether or not your contract mentions it.

How late does an invoice have to be?
Payment becomes late the day after the agreed due date. Where no terms were agreed, UK and EU default rules make it 30 days.

Do late payment fees apply to consumers?
Differently, and more restrictively. Consumer protection rules cap what you can charge individuals, and the statutory B2B regimes above do not apply to them.

The short version

Put the clause in the contract before the work starts, and the number in the footer of every invoice.

In the US, 1% to 1.5% per month inside your state’s limits. In the UK, base rate plus 8% and a fixed sum of £40 to £100 per invoice. In the EU, reference rate plus 8 points and at least €40.

Then apply it quietly, consistently, and without apology. That last part is the one that actually gets you paid.