When a contract or invoice doesn't specify a late payment interest rate, the statutory rate applies by default. The rate is set by state law and varies significantly. Some states set it at 5-6% per annum (relatively low, providing little incentive for prompt payment) while others allow up to 18% per annum. A few states also allow prejudgment interest (interest on the amount owed from the date of breach until a judgment is entered) which can add substantially to the amount owed if litigation drags on.

Specifying your contractual interest rate explicitly in your engagement letter or invoice terms is almost always better than relying on the statutory rate. It puts the customer on clear notice before the relationship begins, lets you set a rate higher than the statutory rate (subject to state usury limits, typically 18-24%), and avoids a legal dispute about which rate applies. A well-drafted late payment clause reads: "Invoices unpaid after [X] days will accrue interest at [Rate]% per month (APR [Y]%), compounded monthly."

When calculating interest for a demand letter or court claim, be precise. State the principal amount, the daily interest rate (annual rate divided by 365), the number of days overdue, and the total interest accrued. Courts and opposing parties will scrutinize the calculation. An incorrect interest claim weakens your overall position even when the underlying debt is valid.