Penalty Interest and Late Fee Clause
What it is
A penalty interest or late fee clause specifies what happens when an invoice is not paid on time. Without one, late payment has no contractual consequence: the client faces no financial cost for delaying. With a well-written clause, late payment accrues interest and collection costs, giving both parties an incentive to resolve payment promptly.
Why it matters to you
Late payment is one of the most common frustrations in professional services. A client who knows late payment is consequence-free has no reason to prioritize your invoice over others. Adding a modest interest clause changes the calculation: the cost of delay is now real. It also gives you leverage if payment becomes genuinely contested — and most clients accept the clause without argument because they do not expect to pay late.
The aggressive version
Contracts sent without a late fee clause are common. This is what a payment section looks like when the drafter omitted protections that belong in every professional services contract.
Client shall pay all invoices within sixty (60) days of receipt. Payment shall be made by check, ACH transfer, or wire, at Client's election. Client shall notify Contractor in writing of any disputed amounts within thirty (30) days of invoice receipt.
What each part does to you
“within sixty (60) days of receipt”
Net 60 with no late fee means the client has free use of your money for two months, with no consequence for taking longer.
“at Client's election”
The client controls the payment method, which can include methods that take additional time to clear.
“[no late fee provision]”
The most important thing missing. Without a late fee clause, this contract gives the client zero contractual reason to pay on time.
The market standard version
A standard late fee provision is modest, automatic, and clearly tied to the invoice due date.
Invoices are due within thirty (30) days of receipt. Any amount not paid within five (5) calendar days of the due date shall accrue interest at one and a half percent (1.5%) per month (18% per annum), or the maximum rate allowed under applicable law, whichever is lower. Amounts more than sixty (60) days overdue shall also include reasonable collection costs, including attorney's fees, if Contractor initiates collection proceedings.
Your counter-language
This clause adds a standard late fee and collection cost recovery provision that belongs in every professional services contract.
All invoices are due within fifteen (15) days of receipt. Amounts not received within the due date shall accrue interest at one and a half percent (1.5%) per month, beginning on the first day after the due date. If Contractor must initiate collection proceedings for any overdue amount, Client agrees to pay Contractor's reasonable collection costs, including attorney's fees. Interest accrual shall not be waived except by written agreement signed by both parties.
What to ask for
“Can we add a late-payment interest clause — 1.5% per month is standard and signals we both intend to honor the payment terms?”
“Can we include a collection costs provision so that if payment requires formal recovery, the client covers those costs?”
“Can we shorten the payment period to Net 15 or Net 30 — 60 days means you are using my cash flow for two months?”
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ClauseCheck is not a law firm and does not provide legal advice. The clause examples and counter-language on this page are illustrative only and are not a substitute for advice from a qualified attorney. Contract terms vary by context; consult a lawyer before making decisions on any specific agreement.
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