What late payment interest rate can I legally charge?

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."

Late to this thread but wanted to add my experience. I added the 1.5%/month late fee clause to all my invoices last year and honestly it hasnt made much difference in getting paid faster. The clients who pay late still pay late, they just ignore the fees.

What DID work was switching to 50% upfront payment before starting work. Completely changed my cash flow situation.

@FreelanceWriter_Kim - yep this is exactly what I was saying about the psychology. The late fee clause is more useful as a negotiating chip ("I'll waive the $200 in accumulated fees if you pay by Friday") than as actual revenue.

The upfront deposit approach is way more effective. Net 30 is a myth for small vendors - big companies will pay when they feel like it regardless of your terms.

Thanks for the follow up everyone. Ended up going with 1.5%/month AND 50% upfront for new clients. The combo has been working well - the upfront requirement filters out flaky clients and the late fee clause gives me leverage when needed.

For anyone setting up their invoicing - I used the invoice generator on this site to make sure all the legal language was included. Made it way easier than drafting from scratch.