Can I add attorney fees or collection costs to an unpaid invoice?
Can you add attorney fees or collection costs to an unpaid invoice?
Short answer
You can add attorney fees and collection costs to an overdue balance only if your original contract or engagement letter includes a fee-shifting clause — a provision stating that the prevailing party (or the non-defaulting party) is entitled to recover their legal fees and collection costs. Without such a clause, each party bears their own costs in most US states. Not legal advice — consult an attorney to add this to your contracts.
The default rule in US litigation, the "American Rule," is that each party pays their own attorney fees no matter who wins. A fee-shifting clause overrides that. It contractually obligates the losing party (or in a collections context, the non-paying party) to cover the winner's legal fees and costs. The clauses are enforceable in most US states for commercial contracts and show up routinely in service agreements, construction contracts, and lease agreements.
Typical language reads something like: "In the event of any dispute arising from this agreement, the prevailing party shall be entitled to recover its reasonable attorneys' fees and costs, including collection costs, from the non-prevailing party." Some contracts make this one-way (only the service provider recovers fees if they prevail, not the client). One-way clauses are legal in some states but get read as mutual under state statutes in others. Check your state's rules before relying on one-way language. Not legal advice.
A fee-shifting clause changes the collection math. Without one, spending $2,000 in legal fees to collect a $3,000 invoice nets you $1,000 (barely worth it). With one, if you win, the customer owes $5,000 ($3,000 principal plus $2,000 fees). That changes which invoices are worth pursuing through court. It also sometimes pulls payment before litigation. A customer who knows they will eat your legal fees on a loss has a stronger incentive to settle.
Adding a fee-shifting clause to new contracts is a one-line change to your engagement letter or standard terms. Have an attorney review the language for your state before you use it. The clause has to be clear, specific, and consistent with state law to be enforceable. Adding it to an existing client relationship requires a contract amendment signed by both parties.