Charging Interest and Late Fees on Unpaid Invoices


You held up your end of the deal – rendering services or delivering goods – but now your client is ignoring the invoice. It’s an unpleasant situation, with implications for your cash flow and customer service. You can charge a late fee or interest, but make sure the original contract the client signed clearly states any fees or interest charges that will be assessed.

There are three important things to know:

  1. Assess late fees only if a written agreement outlines this option. Be sure to include this phrase: “Accounts not paid within terms are subject to a ___% monthly finance charge.”
  2. Don’t charge more than 10% interest per year. Some states restrict the amount you can charge in late fees, but you’re likely safe if you cap rates at 10%.
  3. Try waving a carrot instead of a stick by offering a discount for either full payment upfront or within 30 days. Sometimes incentives to pay early or on time can be more effective than threats of fees and interest charges.

Knowing the answers to a few key questions and taking action upfront can ease the pain of dealing with non- or slow-paying customers.

Can you charge interest on unpaid invoices?

You can charge interest on unpaid invoices if you stay within the bounds of the law. Late fees are standard practice in many industries. Nevertheless, you should let your client know your intention in advance. The key to charging interest is to do it legally and without losing sight of your goals. Collecting the original invoice amount and maintaining a good relationship with the customer should always be your main objectives.

 

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