Glossary · Payment terms
Late fee
Also called Late payment fee, Late charge
A late fee is a charge added when an invoice isn’t paid by its due date, either a fixed amount or interest on the overdue balance.
A late fee compensates the supplier for the cost of being paid late. It takes two forms: a flat charge per overdue invoice, or interest on the overdue amount, often expressed per month (1.5% a month is a common US contract rate).
Whether you can charge one depends on the law where you trade. In the EU and UK, statute gives B2B suppliers interest and a fixed recovery sum automatically, whatever the contract says. In the US, the contract governs: a late fee must be agreed in advance, and state law caps what can be charged and requires it to compensate rather than punish.
Most suppliers use late fees as leverage more than income. Stating the fee clearly in the terms and on the invoice changes payment behaviour; waiving it once, in exchange for payment now, is often how an overdue invoice gets settled.
Example
A US agency’s contract sets a late charge of 1.5% a month. A $6,000 invoice paid 40 days late carries about $118 in late charges ($6,000 × 18% × 40/365).