When can I charge late fees or finance charges?

Related Ads

Need Professional Help? Talk to a Lawyer

Enter Your Zip Code to Connect with a Lawyer Serving Your Area

searchbox small

Question:

My client's payment is more than 60 days past due. In our written agreement, the client agreed to pay half of my fee up front and half on completion. Now that the work is done and the client hasn't paid the second half of my fee, can I charge a late fee? If so, how much can I charge?

Answer:

You've certainly hit on the biggest complaint of most freelancers: clients who won't pay up. Late fees are certainly one good way to discourage this kind of behavior, but they aren't appropriate in every situation.

You should assess a late charge only if the client knew, at the outset, that you reserved the right to do so. For example, if your written agreement provided for this possibility, or if you have done work for the same client before and charged a late fee without any objections, you can charge a late fee now. Also, all of your invoices should include the phrase, "Accounts not paid within 15 days of the date of the invoice are subject to a __% monthly finance charge."

A late fee is normally assessed as a monthly finance charge. Figuring out what to charge is a two-step process. First, divide the annual interest rate you want to charge as a late fee by 12 to determine your monthly interest rate. Next, multiply this monthly rate by the amount due to determine the amount of the monthly late fee. For example, if the annual interest rate is 12%, the monthly interest rate is 1%. If a client owed you $10,000, you'd multiply this amount by 1% to figure out how much the client owes you every month as a late charge. One percent of $10,000 is $100, so the client would owe you an extra $100 for every month his payment was late.

Your state might restrict how much you can charge as a late fee. As long as you charge no more than 10% per year, however, you probably won't run afoul of your state's rules.

Get Informed

Empower yourself with our plain-English information

Do It Yourself

Handle routine tasks with our products

Find a Lawyer

Connect with a local lawyer who meets your needs

The fastest, easiest way to find, choose, and connect to business lawyers

LA-NOLO3:DRU.1.6.2.20140813.27175