late payment interest
Definition
Late payment interest is extra money a customer owes you on top of an unpaid invoice when they fail to pay by the agreed deadline. The law or your contract sets a specific percentage rate that automatically starts building up each day or month the payment remains overdue. It exists to compensate you for the financial harm caused by waiting for money that should already be in your account.
Example
You invoice a client $5,000 due within 30 days, and your contract states a 1.5% monthly late payment interest rate, so if they pay 60 days late you can charge them an extra $150 on top of the original amount.
Watch Out
You need to clearly spell out your late payment interest rate in your contracts or invoices before work begins, because courts are unlikely to enforce a rate you added after the fact.
See which terms appear in your contract?
This definition is for informational purposes only and does not constitute legal advice. Please consult with a licensed attorney for legal guidance.