The four parts of a late payment clause#
| What | What it says | Typical wording | How clients react |
|---|---|---|---|
| Interest | A rate on the overdue amount, from the due date until paid | 1% per month, or the legal maximum if lower | Often accepted with a grace period |
| Fixed late fee | A flat sum per late invoice | $50 per invoice, or the UK statutory sum | Accepted when small; struck when large |
| Collection costs | Reasonable costs of collecting, including legal fees | "reasonable costs of collection, including attorneys' fees" | Often made mutual |
| Suspension | The right to pause work while an undisputed invoice is late | after written notice and [10] business days | Often struck; worth the most |
Interest and the fixed fee compensate for the wait. Collection costs cover what you spend to get paid. Suspension is not money at all, and it is the part that changes behavior most, because a paused project costs the client more than an invoice.
Late payment interest in the U.S.: what limits it#
Three rules shape a U.S. clause.
State interest limits. Usury is “interest that a lender charges a borrower at a rate above the lawful ceiling,” and it is defined by state statutes that “may be different from one state to another”; some states, such as Nevada, have no usury law at all.1 Whether a given state treats interest on a late invoice the same way as interest on a loan, and which exemptions apply to businesses, varies. That is why the standard clause adds “or the maximum rate permitted by applicable law, if lower”: it keeps the rate valid wherever the contract is governed. Ask a lawyer in your state before you set a rate above 1.5% a month.
The penalty rule. A contract can fix damages in advance, but “only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach,” and “a term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty.”2 A $50 fee on a $20,000 invoice reads as a cost of handling. A $2,000 fee on the same invoice reads as a penalty.
Agreement. A rate printed only on your invoice, never agreed in the contract, is weak. Put the clause in the MSA, or in the SOW if there is no MSA, and refer to it on each invoice.
What it is worth. On a $20,000 invoice paid 30 days late, 1% a month is $200. Small next to the invoice, but it gives a payables team a reason to move your invoice ahead of one that costs nothing to delay.
Late payment in the UK: the Late Payment of Commercial Debts (Interest) Act 1998#
Between UK businesses, the law gives you remedies even if the contract says nothing.3
When a payment is late. If no payment date is agreed, payment is late 30 days after the customer gets the invoice or after you deliver the service, whichever is later. An agreed term for a business transaction is usually within 60 days; a longer one must be fair to both businesses.3
Statutory interest. “8% plus the Bank of England base rate for business to business transactions.”4 The base rate used is the one in force on June 30 for interest that starts to run between July 1 and December 31, and the one in force on December 31 for interest that starts between January 1 and June 30.5 Bank Rate was 3.75% on June 30, 2026, as it has been since December 18, 2025,6 so statutory interest that starts to run in the second half of 2026 is 11.75% a year.
Fixed sums for recovery. On top of interest, once statutory interest runs, you may charge a fixed sum once per invoice:7
| What | Fixed sum |
|---|---|
| Up to £999.99 | £40 |
| £1,000 to £9,999.99 | £70 |
| £10,000 or more | £100 |
If your reasonable costs of recovering the debt are higher, the Act lets you claim the difference.8
A worked figure. A £20,000 invoice that falls late on July 15, 2026 and is paid 30 days later carries £20,000 × 11.75% ÷ 365 × 30 = £193.15 in statutory interest, plus the £100 fixed sum. GOV.UK’s own guidance says to send a new invoice if you decide to add interest.4
When the contract sets its own rate. You cannot claim statutory interest if the contract has a different rate of interest.4 But a contract term that ousts or varies statutory interest is void unless the contract gives a “substantial remedy” for late payment.9 A remedy is not substantial if it is insufficient to compensate or deter late payment and it would not be fair or reasonable to rely on it; the factors include the parties’ bargaining strength and whether one side imposed the term on the other.10 A client’s MSA that sets 1% a year over base rate, or no interest at all, can fail that test.
So for a UK services firm, the simplest clause points to the Act rather than inventing a rate.
Late payment clause wording to copy#
Late payment. Any amount not paid when due, other than an amount disputed in good faith under Section [x], accrues interest from the due date until paid at one percent (1%) per month, or the maximum rate permitted by applicable law if lower. Client shall also reimburse Provider's reasonable costs of collecting any overdue amount, including reasonable attorneys' fees. If any undisputed amount remains unpaid [fifteen (15)] days after Provider's written notice, Provider may suspend the Services until it is paid, and the dates in the affected SOW shall be extended by the period of suspension.
Late payment. If Client fails to pay any undisputed sum by its due date, Provider may charge interest on that sum from the due date until payment, and compensation and reasonable recovery costs, in each case under the Late Payment of Commercial Debts (Interest) Act 1998. If any undisputed sum remains unpaid [fifteen (15)] days after Provider's written notice, Provider may suspend the Services until it is paid, and any affected dates shall be extended accordingly.
In addition, Provider may charge an administrative fee of [$50] for each invoice paid more than [fifteen (15)] days after its due date, which the parties agree is a reasonable estimate of Provider's costs of handling late payment.
The UK clause sets no rate of its own on purpose. The Act already supplies one, at 11.75% a year for the second half of 2026, which is higher than most firms would write into a contract.
What clients strike, and the fallback to offer#
| What | Why | The fallback |
|---|---|---|
| All interest | "We never pay interest" is a policy line in their template | Interest only after written notice and a 10-day grace period |
| 1% a month | It reads as 12% a year | 0.5% a month, or the prime rate plus a set margin |
| Collection costs | One-sided | Make it mutual: the prevailing party recovers reasonable costs |
| Suspension | Their project could stop | Suspension only after 30 days late and 10 business days' notice |
| A flat fee | It reads as a penalty | Drop it; keep the interest |
| (UK) The Act | Their template sets "no interest" or a token rate | Point to section 8: a term that ousts the Act without a substantial remedy is void |
Any undisputed amount that remains unpaid ten (10) days after Provider gives Client written notice that it is overdue accrues interest from the date of that notice until paid at [0.5%] per month, or the maximum rate permitted by applicable law if lower.
This version costs a client that pays on time nothing at all, and a client that pays within ten days of a reminder nothing either. It is hard for their legal team to argue against, and it still gives your final notice something to point to.
Trade the parts against each other. If you have to give up one, give up the flat fee and keep the suspension: the right to pause work is the one remedy that does not need a court.
When to charge the fee, and when to waive it#
The clause gives you a lever; charging it is a choice. Practice that works for small firms:
- Mention it once, on the final notice, with the amount it has reached. The final notice page has that letter.
- Waive it in writing, as a favor, when the client pays by a date. “If the invoice is paid by Friday, we will waive the $200 of interest” gets a date and keeps the goodwill.
- Charge it when a client is late every month. Then it is the price of their payment habit, and it belongs on a separate invoice.
What Tommos does when an invoice is late, and what it does not#
Tommos (tommos.ai) is a CRM whose AI agents, the tommos, take a B2B inquiry to a signed contract. Tommos charges no late fees and adds no interest itself; whether to charge what your contract allows stays your decision. What it does, on the Sign plan: when an invoice made in your invoice system (Mercury today) is not paid by its due date, Tommo Closer writes the reminder to the client on a card in your inbox, where you send it, change it or skip it. You set the days before the first reminder, the interval and how many there are. After the last one, Tommo gives the errand to a person, who decides what comes next: a call, the final notice, the interest. If the client objects to the invoice, Tommo answers from the record.
Questions about late payment fee clauses#
- What is a late payment clause?
- A contract term that sets what a client owes when it pays after the due date: usually interest on the overdue amount, sometimes a fixed fee and the costs of collection, and often the right to pause the work.
- What is a reasonable late payment interest rate in the U.S.?
- Many services contracts use 1% to 1.5% a month, with "or the maximum rate permitted by law, if lower," because interest limits are set by each state. Check your state's limit with a lawyer before going higher.
- Can I charge a late fee if it is not in the contract?
- In the U.S., a fee the client never agreed to is hard to collect. In the UK, the Late Payment of Commercial Debts (Interest) Act 1998 gives business suppliers statutory interest and a fixed sum even when the contract is silent.
- What is the statutory interest rate for late payment in the UK?
- 8% a year over the Bank of England base rate, fixed on June 30 or December 31 before the debt falls late. With Bank Rate at 3.75% on June 30, 2026, it is 11.75% a year for debts that fall late between July 1 and December 31, 2026 (GOV.UK and the Bank of England, read Oct 15, 2026).
- How much can I charge for late payment in the UK?
- Statutory interest, plus a fixed sum per invoice of £40 for debts up to £999.99, £70 for £1,000 to £9,999.99, and £100 for £10,000 or more, and reasonable recovery costs above that sum (GOV.UK, read Oct 15, 2026).
- Is a late fee a penalty?
- It is enforceable when it is a reasonable estimate of the loss from late payment, and unenforceable as a penalty when it is unreasonably large. Interest at a normal rate, or a small handling fee, is usually on the right side of that line.
- Do these rules hold in every state and country?
- No. Rules on interest and late fees differ by state and country, and this page is not legal advice. For a large contract, ask a lawyer licensed where it is governed.
Key takeaways#
- A late payment clause has four parts: interest, a fixed fee, collection costs and suspension.
- In the U.S., agree the rate in the contract and add “or the maximum rate permitted by law, if lower.”
- In the UK, point to the Late Payment Act: 8% over base rate (11.75% for the second half of 2026) and £40 to £100 per invoice.
- When a client strikes interest, offer interest after notice and a 10-day grace period.
- Keep the right to pause work if you give up anything else.
- For the whole path from the signed SOW to the money, read how to get paid on time.
Sources#
- Cornell Law School, Legal Information Institute, Wex, “usury”, read Oct 15, 2026
- Restatement (Second) of Contracts § 356(1), quoted in Cornell LII Wex, “penalty clause”, read Oct 15, 2026
- GOV.UK, “Late commercial payments: charging interest and debt recovery: when a payment becomes late”, read Oct 15, 2026
- GOV.UK, “Late commercial payments: interest on late commercial payments”, read Oct 15, 2026
- The Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002, article 4, read Oct 15, 2026
- Bank of England, “Official Bank Rate history”, read Oct 15, 2026 (last change: 3.75% on December 18, 2025)
- GOV.UK, “Late commercial payments: claim debt recovery costs on late payments” (section 3), read Oct 15, 2026
- Late Payment of Commercial Debts (Interest) Act 1998, section 5A, read Oct 15, 2026
- Late Payment of Commercial Debts (Interest) Act 1998, section 8, read Oct 15, 2026
- Late Payment of Commercial Debts (Interest) Act 1998, section 9, read Oct 15, 2026
Read next
- How to get clients to pay on time: the path from the signed SOW to the moneyThe eight steps from the signed SOW to the money, the vendor setup email and the invoice checklist.
- SOW payment terms: the clause, with wording to copyClause wording for fixed fee, hourly and retainer work, the PO and billing details, and a filled example.
- Final notice for an unpaid invoiceWhat the last letter may say, the call before it, the notice that pauses the work, and the UK letter before claim.