How late fees are calculated
Most late fees are simple interest on the overdue amount. With a monthly rate, the fee grows in proportion to how many days the invoice is late, using 30 days as a month:
Late fee = amount × monthly rate × (days late ÷ 30)
For example, an invoice for $1,200 that is 45 days late, at 1.5% per month, has a late fee of $1,200 × 0.015 × 1.5 = $27.00. With an annual rate, divide the days by 365 instead. If your terms include a grace period, only the days after it count.
Common late fee policies
| Policy | How it works | Where it's used |
|---|---|---|
| 1–1.5% per month | Interest on the overdue balance, charged per month late | Common in US contracts; state limits apply |
| Flat fee | A fixed amount, such as $25 or $50, once the invoice is late | Small invoices, where interest would be tiny |
| UK statutory interest | 8% a year plus the Bank of England base rate, plus £40–£100 fixed compensation | Late business-to-business payments in the UK |
| EU statutory interest | At least the ECB reference rate plus 8 points, plus €40 compensation | Late business-to-business payments in the EU |
Whatever you choose, put it in writing before the work starts — on your estimate, contract, and invoice — and apply it consistently. A late fee your client didn’t agree to is hard to collect.