Can You Legally Charge Interest on Overdue Invoices? (9) | Saldoinvoice.com

Can You Legally Charge Interest on Overdue Invoices?

Every self-employed person is obliged to know their rights, responsibilities and comply with the law. Many are interested in the legality of collecting interest on invoices that were not paid on time. And it is the right question. The shortest answer is yes, but it’s not that simple. Let’s take a closer look at the issue with Saldo Invoice.
How to Charge late fees for invoices?

Calculating Interest on Overdue Invoices

It is worth stipulating that you cannot just start adding a penalty to the unpaid amount if you haven’t discussed this issue with a client. Before signing a contract, you should indicate your terms and conditions and specify what percentage and under what circumstances will be added to the totals in the emailed or printed invoice. We recommend registering it in the “Notes” section so that a customer has all the important information before their eyes. There are two options for how to charge late fees on invoices. You can set a fixed amount or assign a percentage to be added to the total, for example, monthly. If the first option suits you, just add the agreed amount for each month of delay. If you chose a percentage, e.g., 6%, multiply a debt by 0.06 to get the fee amount.
Write Overdue Invoice Letter to Get Paid
Invoice interest charges on late payments should be done just like with any other items you have provided to an orderer. Indicate what exactly you ask money for and by what time a client should pay. If a recipient turns out to be a persistent defaulter, send such papers for each overdue period. In some situations, you may also require recovery costs. That is how to collect unpaid invoices.

What Is the Standard Late Fee on an Invoice?

The law doesn’t establish a standard fee for expired bills. But what is the maximum late fee allowed by law? It depends on the specific region, country, or state. For example, if you do business in the United States, Connecticut has a maximum fine of 12%, while in Maryland, the rate is 6-8%. So, before entering into a contract with a client, ask your business advisor ‘how much interest can I charge on overdue invoices following local laws’. However, every industry still has unspoken norms. As a rule, typical late fees for invoices do not exceed 1-1.5% of the total amount of a contract. Keep in mind that it should be a motivational measure to get a customer to pay on time. There is no need to impose too high fines to try to squeeze the maximum out of a payer. Still, it’s better to maintain a good relationship; then, there is a high probability that a client will return to you.
How to invoice someone?

Examples of Unpaid Invoice Email

Of course, if your orderer did not provide money at the agreed time, you can’t just write off unpaid invoices. It’s necessary to carry out competent work with them to get your money and prevent repeating such a situation in the future. It’s recommended to send three letters:
  1. A couple of days before the due date with a gentle reminder to pay. Be polite and clear about a subject. You may ask if everything is fine, whether your assistance is needed, etc.
  2. A few days after the due date, in a mild form, notify a client that the sent invoice is overdue, and you start charging the fee.
  3. If, after two notifications, a recipient hasn’t paid, write the final letter for the unpaid invoice in a stricter tone and inform a customer that legal actions may follow.
Attach a copy of an invoice .xls, .pdf, or .docx to each message if a client accidentally deleted the previous ones.
Radomir Novkovich
Co-founder of Saldo Apps. His core competencies include product management, mobile app marketing, financial advertising, and app store optimization.
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