Can I charge interest on a late invoice?
Can I charge interest on a late invoice?
Short answer
Yes — if the interest term is in your written agreement before the invoice is issued, and the rate is below your state's usury cap. Commercial rates of 1 to 1.5 percent per month (12 to 18 percent annualized) are typical and broadly enforceable. State variation is wide: Alabama caps interest around 8 percent in some contexts, while New Jersey allows up to 50 percent on corporate transactions. Without written contract terms, courts almost universally refuse to enforce interest charges, even in states with no statutory cap.
Late fees and late interest are different things and conflating them creates legal exposure. A late fee is usually a flat charge or one-time percentage applied when an invoice goes past due. Late interest is an ongoing rate applied to the unpaid balance over time. Both are contract-driven, both are state-regulated, and both depend on the same single precondition: the customer agreed to it in writing before you sent the invoice.
Written agreement is non-negotiable. Almost every state, including ones with no statutory interest cap, requires the interest term to be in the written agreement between the parties. Putting '1.5% interest will be charged on overdue balances' on the invoice you sent after the work was already done does not bind the customer — they did not agree to that term when the contract was formed. Courts have repeatedly held this. The remedy is to put the term in your engagement letter, master services agreement, or signed proposal upstream.
Rate guidance. Commercial typical is 1 to 1.5 percent per month, which is 12 to 18 percent annualized. Some industries use 1.5 percent monthly as a default — a number that has been tested in court repeatedly without falling to usury challenge in most states. Above 24 percent annual you start hitting usury issues in many states. Below 8 percent annual is safe almost everywhere. The right rate is the highest one that is enforceable in your state and looks reasonable on the invoice; making it punitive starts costing you in court if the matter ever goes to suit.
State variation is significant. Alabama caps interest at 8 percent for many transactions absent a specific contractual exception. New Jersey allows up to 50 percent annual interest on corporate transactions. California, Texas, and Pennsylvania have no statutory cap for commercial transactions but apply common-law reasonableness tests — a court can refuse to enforce a rate it deems unconscionable. Florida usury caps the late fee specifically at 5 percent of the unpaid amount or $10, whichever is greater, which is lower than most assume.
B2C is stricter than B2B in most states. Consumer transactions trigger consumer-protection statutes that often impose tighter caps and disclosure rules than commercial usury law. If your customer is an individual buying as a consumer, do not just port your B2B late-fee language onto the invoice — check your state's consumer-credit rules first.
Practical posture. Include the interest rate in your written engagement letter or master services agreement at 1 to 1.5 percent monthly. Restate it on every invoice as a reminder, not as a new term. Do not enforce until you have given the customer reasonable opportunity to pay (most invoices that recover do so before interest becomes meaningful). When you do calculate, calculate from the day after the due date.
Interest accrual is a back-end deterrent. The front-end deterrent is consistent first-party calling at day 3. The two layers compound — if the customer knows interest is accruing AND the calls are coming reliably, they pay sooner. Either alone is half the system. Syntharra runs the front end; your contract handles the back.