Late Fee
A charge applied when payment is not received by the due date.
A late fee is a penalty charged when a customer fails to pay by the invoice due date. Common structures include flat fees ($25–$50), percentage-based fees (1–2% per month on the overdue balance), or daily interest charges. Late fee terms should be clearly stated on invoices and in service agreements. State laws may limit maximum late fee amounts.
Example
An invoice's terms state a 1.5% monthly late fee on overdue balances—a $10,000 invoice paid 30 days late incurs a $150 late fee.
Why It Matters for Your Business
Late fees incentivize timely payment and compensate you for the cost of carrying unpaid receivables, but they only work if you consistently enforce them.
Practical Tips
- •Include late fee terms on every invoice and in your service agreement.
- •Actually charge late fees—stating them but never enforcing them trains clients to pay late.
Related Terms
More Invoicing Terms
AR Aging
A report categorizing outstanding invoices by age.
Billing Cycle
The recurring period between billing statements.
Credit Memo
A document reducing the amount owed by a customer.
Days Sales Outstanding
Average days to collect payment after a sale.
Invoice
A document requesting payment for goods or services.
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