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The short version
- Agree the fee before the work starts, in your estimate, contract or terms, and repeat it on every invoice.
- Choose a flat fee or interest on the overdue balance. Interest scales with the size and age of the debt.
- In Canada, state interest as a yearly rate. Under the Interest Act, a monthly rate without its yearly equivalent can limit you to 5% a year.
- Rules vary by province and state, especially for consumers. Check yours before you rely on a fee.
Agree the fee before the work starts
A late fee is part of your agreement with the client, so it has to be in the agreement. Put it in your estimate or contract, where the client sees it before saying yes, then repeat it in the terms on every invoice. Adding a fee for the first time to an invoice that is already overdue is likely to start an argument and may not hold up.
In New York, for example, the Department of Financial Services wrote in a 2000 letter that a late charge cannot be enforced without an express or implied agreement. Other states and provinces have their own rules, and consumer protection laws can limit what you charge homeowners. Check with your province, state or a lawyer before you rely on a fee.
A flat fee or interest
| Flat fee | Interest | |
|---|---|---|
| How it works | One fixed amount once the invoice is late, like $25. | A percentage of the overdue balance for each period it stays unpaid. |
| Good for | Small invoices, where interest would be cents. | Larger invoices and clients who pay months late. |
| Easy to explain | Yes. | Yes, if you give the yearly rate and the start date. |
| Grows the longer it is late | No. | Yes. |
Many businesses charge 1% to 2% a month on the overdue balance, or a small flat fee. Whatever you choose, keep it proportionate: a fee that looks like a penalty is more likely to be disputed than paid.
In Canada, write the yearly rate
Section 4 of the federal Interest Act covers interest in written or printed contracts (mortgages on real property are dealt with separately). If interest is payable at a rate per day, week or month, or for any period shorter than a year, then no more than 5% a year can be charged or recovered, unless the contract also states the yearly rate that the shorter rate is equal to.
In practice: never write only "1.5% per month". Write the yearly rate, and the monthly one too if you like.
| Wording | States a yearly rate? |
|---|---|
| "Overdue balances are charged 1.5% per month." | No. Under section 4, this could limit you to 5% a year. |
| "Overdue balances are charged interest at 18% per year (1.5% per month), from the due date until paid." | Yes. |
Not legal advice
This is how the section reads, not advice on your contract. Provinces also have consumer protection rules, and a lawyer can tell you how they apply to your terms.
Working out the amount
Simple interest on an overdue invoice is the overdue amount, times the yearly rate, times the days late, divided by 365.
Worked example
$2,500 overdue for 45 days at 18% a year
- Overdue balance
- $2,500.00
- Yearly rate (1.5% a month × 12)
- 18%
- Days late
- 45
- Interest ($2,500 × 0.18 × 45 ÷ 365)
- $55.48
Rounded to the cent. A flat $25 fee on the same invoice would be $25.00 however long it stayed unpaid.
The late fee calculator does this for any amount, rate and number of days, for interest or a flat fee.
How to word it on your invoice
Put the fee in the terms or notes of every invoice, next to the due date, in one plain sentence:
- "Payment due Dec 1, 2026. Overdue balances are charged interest at 18% per year (1.5% per month) from the due date until paid."
- "Payment due Dec 1, 2026. A $25 late fee applies to payments received after the due date."
When an invoice does go late, do not change the invoice you sent. Send a new invoice for the fee, or add it as a line on the client’s next invoice, and name the original invoice number so the client can see where it came from.
Before you charge it
A fee is a last step, not a first one. Most late invoices are forgotten, and a reminder on the due date gets them paid without any friction. Sumocat Pro PRO sends payment reminders on the due date and 3, 7 and 14 days after, until the invoice is paid, so you rarely need the fee at all.
Paying should also be easy. Clients pay sooner when they can do it from the invoice: with Pro PRO, a Pay button through your own Stripe account takes cards, Apple Pay and Google Pay. If a client still will not pay, read what to do when a client won’t pay.
Work out a late fee now
Interest or a flat fee, for any amount and any number of days. Free, no sign up.
Questions
What is a normal late fee?
Many businesses charge 1% to 2% a month on the overdue balance, or a small flat fee. What you may charge depends on where you and your client are and on your agreement, so check your local rules.
Can I add a late fee that was not in my terms?
Usually a late fee needs to be agreed before the work, in your estimate, contract or invoice terms. Put it in writing for future work, and check your local rules before charging it on an invoice that is already late.
Is 1.5% a month the same as 18% a year?
As simple interest, yes: 1.5% × 12 = 18%. In Canada, write the yearly rate in your terms, because under the Interest Act a rate stated only per month can limit what you recover to 5% a year.
Should I charge a late fee to a good client?
That is your call. Many businesses waive the first one and mention the terms, then apply them if it happens again. Having the fee in writing gives you the choice.
Sources
The official pages this guide relies on, with the date we last checked each one. Rules and rates change, so check the page itself before you rely on it.
- Justice Laws Website, Interest Act, R.S.C. 1985, c. I-15, section 4. laws-lois.justice.gc.ca/eng/acts/i-15/page-1.html Checked .
- New York State Department of Financial Services, Banking interpretations, letter of March 22, 2000. www.dfs.ny.gov/legal/interpret/lo000322.htm Checked .