What Is a Reasonable Late Payment Interest Rate to Charge on Invoices?
Picture the moment: an invoice 47 days past due, the client gone quiet, and you hovering over the send button on a follow-up that mentions interest for the first time. The question underneath that hesitation is the one everyone asks. What is a reasonable late payment interest rate to charge on invoices? Pick a number too high and you look predatory. Too low and it changes nothing. Here is the number most people land on, what it costs on real invoices, and the part of the answer that is not a number at all.
The short answer: 1.5% per month
Among freelancers and small businesses, 1.5% per month (18% a year) is the most common contractual late payment rate. The widely accepted band is 1% to 2% per month. If you want a number for your terms and you want it today, use 1.5%. It is common enough that clients recognize it as standard, high enough to get attention, and low enough that no one credible will call it a penalty.
For reference, the UK statutory rate sits around 11.75% a year right now, roughly 0.93% a month. Contractual US rates run higher because they are negotiated between parties rather than set by statute. There is no US federal rate; state usury and contract laws set the ceiling, and it varies.
What is a reasonable late payment interest rate: the math on real invoices
Simple interest on the invoice amount only. Here is what each rate produces:
| Invoice | Days late | 1%/mo | 1.5%/mo | 2%/mo |
|---|---|---|---|---|
| $2,500 | 30 | $25 | $37.50 | $50 |
| $2,500 | 60 | $50 | $75 | $100 |
| $2,500 | 90 | $75 | $112.50 | $150 |
| $10,000 | 45 | $150 | $225 | $300 |
Notice the pattern. On a typical freelance invoice, even three months late at the top of the band produces $150. The interest is not where your money is; the invoice is. The rate exists to change the client's behavior, not to become a revenue stream. Anyone choosing 2% because it "earns more" has misunderstood what the number is for.
Why 1.5% won
It is not a magic number. It survived because it sits in the narrow band where two things are true at once: the amount accumulates fast enough that a client notices it growing, and slow enough that paying it never feels like being mugged. At 1.5% a month, a $5,000 invoice accrues $2.50 a day. That is a coffee. A client can look at a $75 monthly addition and pay it without a fight, but they cannot ignore the meter running. Rates much higher start to look punitive, and punitive rates are the ones courts refuse to enforce.
What matters more than the rate
Three things, in order:
- That the clause exists at all. Most of the interest clause's value is deterrent. Clients who know the meter is running pay faster. The freelancers who get burned are not the ones with the wrong rate; they are the ones with no clause, trying to invent terms for an invoice that is already overdue.
- The grace period. Seven to fifteen days after the due date is standard. It keeps the clause from firing on a client whose accounts payable runs a week behind, and it keeps you from looking petty.
- Simple, not compound. Calculate interest on the original invoice amount only. Compounding reads as punitive, complicates the math, and is harder to defend in a dispute.
When I would not charge it
Here is the part nobody writes. A first-time late payment from a good client who calls to explain? I would waive it. A small amount where the interest is $12 and the awkwardness costs more than $12? Waive it. A strategic client whose next project is worth fifty times the invoice? Waive it and mention the clause exists. The interest is a tool for chronic late payers and vanished clients, not a tax on every human imperfection in accounts payable.
And that brings the recontextualized version of the number from the top. The 1.5% was never really the answer to the question. The answer is that having a rate, agreed in advance, communicated calmly, is what changes behavior. The freelancer hovering over the send button does not need a better number. They need a clause they already wrote, and the willingness to use it exactly once, because one invoice with interest on it teaches a client more than ten polite reminders.
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Run your own numbers with the free calculatorFrequently asked questions
What is a reasonable late payment interest rate to charge on invoices?
1.5% per month (18% a year) is the most common contractual rate freelancers and small businesses use. The widely accepted band is 1% to 2% per month. Put whatever you choose in your contract before the work starts.
Is charging 1.5% per month legal?
In the US it generally is, as long as the rate was agreed in your contract and does not exceed your state's usury or contract limits. Rates that look punitive rather than compensatory can be struck down, so the customary 1 to 2% band is the safe ground.
Can I charge interest if it was not in my contract?
In most US states, no, unless a statute covers the situation. A rate invented after the invoice went overdue is hard to enforce. Add the clause to your payment terms before the work starts, not after the client is late.
Should late payment interest be simple or compound?
Simple interest, on the original invoice amount only. Compound interest on late payments reads as punitive, complicates the math, and is harder to defend if a dispute reaches a court.
What if my client refuses to pay the interest?
The clause usually does its real work before collection: clients who know the meter is running pay faster. For clients who will not pay it, weigh the relationship against the amount, and price the lesson into your next quote.
Related: How to Charge Interest on an Overdue Invoice Without Losing the Client · Late Fee vs Interest on Overdue Invoices: Which to Use · State Late Payment Interest Rates for Invoices
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