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Late payment interest clause: meaning and sample wording

A late payment clause lets the party that is owed money charge interest on overdue amounts, and often suspend work until it is paid.

When to use it

Include one in any contract where you invoice for goods or services. Customers pay faster when late payment has a visible cost.

Sample late payment interest clause

If the Customer fails to pay any amount due under this Agreement by the due date, the Supplier may charge interest on the overdue amount at the rate of one and one-half percent (1.5%) per month, or the maximum rate permitted by law if lower, from the due date until the date of actual payment, whether before or after judgment.

In addition, if any undisputed amount remains unpaid more than seven (7) days after the Supplier gives written notice of non-payment, the Supplier may suspend performance of the Services until the amount is paid in full.

What to check

  • A reasonable rateA rate far above commercial rates can be struck down as a penalty or breach usury limits, which vary by US state. Adding "or the maximum rate permitted by law if lower" is a common safeguard.
  • Statutory interestIn the UK, businesses can claim statutory interest at 8% above the Bank of England base rate, plus fixed compensation, on late commercial payments where the contract does not provide a substantial remedy of its own.
  • Before or after judgmentSaying interest runs "whether before or after judgment" avoids an argument once you go to court.
  • SuspensionA right to pause work is often more persuasive than interest. Require written notice first.

Work out the interest on an overdue invoice with the free late payment interest calculator.

Make the variable parts fill themselves in

In a Word template, replace the details that change with {tags} and wrap optional wording in a section. Clausery turns them into questions, so each document only includes the parts that apply:

{#charges_interest}
Overdue amounts bear interest at {interest_rate} from the due date until payment.
{/charges_interest}

Paste this into your own template, then check it with the free template tag checker or read the template syntax.

Questions

What interest rate can I charge on late invoices?

Whatever the contract says, within legal limits. 1% to 1.5% per month is common in US commercial contracts, subject to state usury laws. Without a contract term, you may be limited to a statutory rate or none at all.

Can I charge interest if the contract does not mention it?

Sometimes. UK businesses have a statutory right to interest on late commercial payments. In many other places, you can only claim interest if the contract provides for it or a court awards it.

Can I use this sample wording as it is?

It is a general starting point. Contract law differs between countries and states, and the right wording depends on the deal, so have it reviewed before you rely on it.

Free templates that use it

Related clauses

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This page is general information, not legal advice. Laws differ between countries and states; have wording reviewed for your situation before you rely on it.