Want to add a late fee clause to my invoices. Seeing rates from 1.5%/month to 18%/year. What's legally enforceable? I'm in California, clients nationwide.
State usury laws cap interest rates, but B2B transactions often have exemptions. Key considerations:
California: 10% per year for non-exempt loans, but B2B contracts for services/goods are often exempt. 1.5%/month (18% APR) is common and generally enforceable for business debts.
Other states vary. New York allows higher rates for commercial transactions. Some states are stricter.
Safe approach: 1.5%/month is widely used and rarely challenged. Include language that you'll charge the "maximum rate permitted by law" as a fallback.
Honest take: late fees are more about psychology than actual collection. Most clients who pay eventually will pay the principal. Few will voluntarily pay accumulated interest.
The real value of a late fee clause: (1) creates urgency, (2) gives you negotiating leverage ("I'll waive the fees if you pay by Friday").
Don't forget about collections costs. Add a clause that client pays "reasonable attorney fees and collection costs" if you have to pursue payment. This can be more impactful than interest for small invoices.
Standard language: "Client agrees to pay all costs of collection, including reasonable attorney's fees, incurred by [Company] in collecting any amounts due under this agreement."
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