How to Charge Late Fees for Invoices

January 15, 2024

In this post, we will share how you should charge late fees for invoices to avoid financially risking your business. We will also show you tips on how to handle late fees for invoices.

James Fyfe
Co-founder - CEO

Late fees for invoices are a common practice in the business world, designed to encourage timely payments and compensate for the inconvenience of overdue payments. 

As a business owner, it's crucial to understand the importance of prompt invoice payments for maintaining a steady cash flow and fostering good client relationships. This article will delve into the intricacies of late fees, their benefits, and how to implement them effectively.

What are Late Fees for Invoices?

A late payment fee is an additional charge imposed on a client for not paying an invoice by its due date. It serves as a deterrent for late payments and a form of compensation for the creditor. The fee can be a flat rate or a percentage of the overdue amount, typically ranging from 1% to 1.5%, but that depends on the contractual agreement between the parties.

Legalities Surrounding Late Fees

Legal Measures For Late Fees

Before you charge late payment fees, it's essential to understand the legalities involved. 

First, the original contract with the client should clearly state the terms of late fees. This includes the due date, the grace period, and the amount of the late fee, whether it's a flat fee, a monthly interest rate, or an annual interest rate.

Second, be aware of any legal restrictions on late fees. Some jurisdictions have maximum limits on late fees, and charging more could lead to legal issues.

Finally, clear communication is key. Ensure your invoice late fee wording is clear and understandable. This includes the original invoice, payment reminders, and any communication regarding past-due invoices.

Benefits of Implementing Late Fees

Implementing late fees on invoices can have several benefits for your business.

Encouraging Prompt Payments

Late fees create a sense of urgency for clients, encouraging them to make timely payments. This reduces the number of overdue invoices and improves your business's cash flow.

Compensation for Administrative Costs

Late payments often result in additional administrative costs. These can include time spent sending payment reminders, resources required for collection efforts, and any legal or financial expenses incurred. Late fees can help cover these costs.

Establishing Your Late Fee Policy

When establishing your late fee policy, it's important to set a reasonable late payment fee. This could be a flat fee, a monthly late fee rate, or an interest rate.

Your late fee calculation methods should be clearly outlined in your policy. Whether you charge a late fee as a percentage of the unpaid invoices or as a flat fee, make sure it's clearly stated.

Communicating your late fee policy to clients is crucial. Include it in your invoice payment terms and conditions, and send reminders about the late fee policy. Clear late fee wording is essential to avoid misunderstandings.

Tips for Handling Overdue Payments

Handling late payments effectively requires clear communication with clients. This includes sending reminder emails and notices, keeping an open line of communication, and using professional invoice templates.

Offering incentives for early payments can also be effective. This could be a discount or a rebate for prompt payment.

Automated invoicing and payment reminders can also be a great help. Many invoicing software options include these features, making it easier to manage late invoices.

Invoice Management Tips

Effective invoice management can help reduce the occurrence of late payments. Consider using automated invoicing systems to send out invoices promptly and track unpaid invoices. Regularly tracking invoices can help maintain a healthy cash flow. Additionally, sending payment reminders can be an effective strategy to resolve overdue payments.

Crafting the Perfect Invoice Late Fee-Wording

When crafting your past-due invoice email, remember to keep the wording correct and polite. Also, your late payment policy should be simple, firm, and informative. It should include the invoice number, an itemized list of the services rendered, a summary of the original invoice, the calculation of the new total amount due, and the due date. 

The wording should also specify the late fee payment percentage and provide clear instructions for payment.

Handling Disputes and Exceptions

There may be times when clients have valid reasons for late payments. In these cases, discussing individual circumstances with clients and considering exceptions for loyal or long-standing customers is important.

If a client disputes a late fee, a fair dispute resolution process is essential. Document all communication and evidence, and consider involving a third party, such as a small claims court or a collection agency, if necessary.

Streamline Your Invoicing Process with Portant's Google Sheets Invoice Template

Portant offers a unique solution to automate your invoicing process, saving you time and reducing the risk of errors. By connecting your Google Sheet to an invoice template, Portant allows you to generate and send invoices with just a few clicks automatically. This free Google Sheets invoice template includes various elements such as your logo, unique invoice numbers, payment terms, and contact information.

Portant's Free Google Sheets Invoice Template

To set late fees, you can add a column in your Google Sheet for late fees and include this in your invoice template. Once you've set up your template, you can automate the process by clicking 'Start automation'. Your invoices will be generated and sent whenever you need them, they will be stored in a folder in your Google Drive for easy access and they can be automatically shared via email.

Portant's solution eliminates manual data entry, making your invoicing process more efficient and accurate. It's built into Google Workspace, allowing you to create invoices from templates with the tools you already use - Google Docs, Sheets, Slides, and Forms.

In addition to automating your invoicing, Portant offers various document automation solutions to optimize your repetitive work, so you can focus on the tasks that matter most.


Timely invoice payments are crucial for maintaining a healthy cash flow in your business. Implementing late invoice fees can encourage prompt payments and compensate for the inconvenience and costs of overdue payments. 

You can manage late fees successfully by understanding the legalities, establishing a clear late fee policy, and handling late payments. Clear communication and fair practices are key to maintaining good client relationships while ensuring your business's financial health.

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