Most small business owners either charge nothing on a late invoice, because they assume there’s a rule against it, or they charge a number they made up and hope the customer doesn’t push back. Both are guesses.
The actual answer depends on one thing more than your state: whether you wrote the interest rate into your terms before you sent the invoice. That single fact decides which of two completely different numbers applies to you.
This guide covers business-to-business invoices, meaning invoices between two businesses or between a sole proprietor and a business. Consumer transactions run on different rules and much tighter caps, so if your customer bought for personal use, check your state’s consumer credit statutes instead.
Correction, August 2026
An earlier version of this post published a table of "maximum monthly rates" that ran as high as 5% per month in Delaware, Illinois, Michigan, and Indiana. Those figures were wrong. They came from misreading each state's annual legal interest rate as a monthly cap. Delaware's statute sets 5% over the Federal Reserve discount rate per year, not per month. Illinois and Michigan cap written contract rates at 9% and 7% per year respectively, which makes them two of the more restrictive states, not the most flexible. The table below has been rebuilt and the framing corrected. If you set your invoice terms off the old version, re-read the section on the contract rate.
The two numbers that matter
1. The contract rate. What you can charge because your invoice or your signed terms said you would. This is the number that actually governs almost every real collection, and it’s usually much higher than the statutory default.
2. The statutory rate. What the law gives you when your paperwork is silent. This is the fallback, it’s expressed per year rather than per month, and in most states it lands somewhere between 5% and 12% annually. That’s roughly 0.4% to 1% per month, which is far less than most owners assume they’re entitled to.
The gap between those two numbers is the whole argument for putting a late-payment clause in your terms. A $10,000 invoice sitting 90 days past due earns about $150 at Michigan’s 5% statutory rate. The same invoice with a 1.5% monthly clause in the terms earns $450. Same invoice, same state, same customer. The difference is one sentence you wrote before you sent it.
What you can charge when your terms say so
For B2B invoices, courts generally treat a contractually agreed late charge as either permitted finance charge or liquidated damages, on the theory that the cost of carrying and chasing an unpaid receivable is real but hard to price precisely. Most states also exempt commercial transactions from the usury ceilings that bind consumer lending, and courts give more deference to terms agreed between two businesses than to terms imposed on a consumer.
The practical range:
1% to 1.5% per month (12% to 18% annually) is the safe standard. Enforceable in effectively every state for a commercial contract, high enough that the customer notices, low enough that no one calls it predatory. If you want one number to put in your terms and stop thinking about it, this is it.
Above 2% per month, scrutiny starts. A court can decline to enforce a charge that looks punitive rather than compensatory, and in a handful of states you’re now arguing about usury as well.
A flat administrative fee plus interest is common and generally fine. $25 to $75 per late invoice, stated upfront, alongside the percentage.
Three conditions have to hold for any of it to stick. The rate has to be in writing before the invoice goes out, not added after the fact. The amount has to be defensible as a genuine estimate of what late payment costs you. And the customer has to have had the chance to see it, which means your terms page, your signed agreement, or the invoice itself, not a policy you kept in your head.
A few states are stricter than the general rule and deserve a look before you default to 1.5% monthly. Arkansas caps interest by constitutional provision. Illinois caps written contract rates at 9% per year under 815 ILCS 205/4, and Michigan at 7% per year under MCL 438.31, both with carve-outs that often cover business transactions but not always. If you’re in one of those states and your invoices are large, it’s worth twenty minutes with a local attorney to confirm which carve-out you’re relying on.
What you get when your terms are silent
This is the table people come here for. These are the statutory rates that apply by default to money owed on an open account or as prejudgment interest when the contract says nothing about interest.
Read these as annual rates. Every figure below is per year, not per month.
| State | Statutory rate (per year) | Statute |
|---|---|---|
| Alabama | 6% | Ala. Code § 8-8-1 |
| Alaska | 3.5% | AS § 09.30.070 |
| Arizona | 10% | A.R.S. § 44-1201 |
| Arkansas | 5% | Ark. Code § 4-57-104 |
| California | 10% | Cal. Civ. Code § 3289(b) |
| Colorado | 8% | C.R.S. § 5-12-101 |
| Connecticut | 10% | C.G.S. § 37-1 |
| Delaware | 5% over the Fed discount rate (floats) | 6 Del. C. § 2301 |
| Florida | 5.51% (set quarterly by the CFO) | Fla. Stat. § 55.03 |
| Georgia | 7% | O.C.G.A. § 7-4-2 |
| Hawaii | 10% | HRS § 478-2 |
| Idaho | 5.375% (floats) | Idaho Code § 28-22-104 |
| Illinois | 5% | 815 ILCS 205/2 |
| Indiana | 8% | Ind. Code § 24-4.6-1-101 |
| Iowa | 5% | Iowa Code § 535.2 |
| Kansas | 10% | K.S.A. § 16-201 |
| Kentucky | 8% | KRS § 360.010 |
| Louisiana | 5% | La. Civ. Code Art. 2924 |
| Maine | 5.75% (floats) | 14 M.R.S. § 1602-C |
| Maryland | 6% | Md. Cts. & Jud. Proc. § 11-107 |
| Massachusetts | 12% | M.G.L. c. 231 § 107 |
| Michigan | 5% | MCL § 438.31 |
| Minnesota | 4% (floats) | Minn. Stat. § 549.09 |
| Mississippi | 8% | Miss. Code § 75-17-1 |
| Missouri | 9% | Mo. Rev. Stat. § 408.020 |
| Montana | 10% | Mont. Code § 31-1-106 |
| Nebraska | 12% | Neb. Rev. Stat. § 45-104 |
| Nevada | Prime plus 2% (floats) | NRS § 99.040 |
| New Hampshire | 10% | RSA § 336:1 |
| New Jersey | 6% | N.J.S.A. § 2A:14-2 |
| New Mexico | 8.75% | N.M. Stat. § 56-8-4 |
| New York | 9% | CPLR § 5004 |
| North Carolina | 8% | N.C.G.S. § 24-1 |
| North Dakota | 6% | N.D.C.C. § 47-14-05 |
| Ohio | 4% (set annually) | Ohio Rev. Code § 1343.03 |
| Oklahoma | 6% | 15 O.S. § 266 |
| Oregon | 9% | ORS § 82.010 |
| Pennsylvania | 6% | 41 P.S. § 202 |
| Rhode Island | 12% | R.I.G.L. § 6-26-1 |
| South Carolina | 8.75% (floats) | S.C. Code § 34-31-20 |
| South Dakota | 10% | SDCL § 54-3-16 |
| Tennessee | 10% | T.C.A. § 47-14-103 |
| Texas | 5% (18% max contract rate) | Tex. Fin. Code § 302.002 |
| Utah | Federal rate plus 2% (floats) | Utah Code § 15-1-1 |
| Vermont | 12% | 9 V.S.A. § 41a |
| Virginia | 6% | Va. Code § 6.2-302 |
| Washington | 12% | RCW § 19.52.010 |
| West Virginia | 7% | W. Va. Code § 56-6-31 |
| Wisconsin | 5% | Wis. Stat. § 138.04 |
| Wyoming | 7% | Wyo. Stat. § 40-14-106 |
Rates marked as floating reset on a schedule set by the state, usually quarterly or annually, so confirm the current figure before you put it in a demand letter or a court filing. Several states also distinguish between prejudgment interest and post-judgment interest, and a few make the award discretionary rather than automatic. The statute citation in the right-hand column is the place to check.
How to actually use this
1. Write the clause now, not after the invoice goes late. Something like: “Invoices not paid within 30 days of the invoice date accrue interest at 1.5% per month on the outstanding balance, plus a $35 administrative fee per late invoice.” Put it on the invoice template and in your standard terms, so it applies to every customer by default rather than being a decision you make when you’re already angry.
2. Use the term your state’s statute uses. “Late payment interest” and “finance charge” are usually safe. “Penalty” invites the argument that the charge is punitive, which is the argument you least want to have.
3. Calculate it and show it. Interest you never invoiced is interest you never charged. When a payment goes past due, add the accrued amount as a visible line on the next statement with the days-late count next to it. Customers who ignore a balance often respond to a number that’s visibly growing.
4. Keep the arithmetic. Original due date, payment date, rate applied, days elapsed. If it ever reaches small claims, the judge will want the math, and a clean calculation is most of the argument. See what to do when a customer ignores your invoices for the sequence that gets you there.
5. Decide upfront whether you’ll waive it. Many owners charge interest and then drop it as a closing concession. That’s a legitimate tactic, and it works better when the charge was real and documented rather than invented at the negotiation.
Government and public-sector customers
The rule here runs the opposite direction from what most owners assume. Under the federal Prompt Payment Act, 31 U.S.C. ch. 39, a federal agency that pays a proper invoice late owes you an interest penalty automatically, without you asking for it. The rate is set semiannually by Treasury and is 4.75% for July 1 through December 31, 2026. The default payment clock is 30 days after receipt of a proper invoice unless the contract sets another date.
Most states and many municipalities have their own prompt-payment statutes that work the same way for their vendors, often with better rates. What you generally cannot do is impose your own late-fee schedule on a government customer, because the contract and the statute govern instead. Read the contract’s payment clause before you invoice, not after.
Credit cards and ACH
Card charges follow the network’s rules and your merchant agreement, not your state’s interest statute. Chargeback windows and dispute procedures are set by the network. ACH reversals and returns are governed by Nacha rules and your processor’s agreement. None of that changes what you can charge on the underlying invoice, but it does change your practical leverage, so know which rail the money was supposed to arrive on.
What if the customer refuses to pay the interest?
You have three real options: sue in small claims and ask the judge to award it, write it off, or fold it into a payment plan. Most owners choose one of the last two, because small claims is a day of your life and a filing fee.
Interest works best as leverage rather than as revenue. At 1.5% per month, a $5,000 invoice 60 days past due carries an extra $150. That’s small enough that the customer can clear it, large enough that they’d rather not, and it gives you something to trade. “Pay the principal this week and I’ll waive the interest” closes more invoices than the interest itself ever collects. If you’re heading toward a negotiated close, how to settle an unpaid invoice for less and the payment plan agreement template cover the mechanics.
FAQ
Can I charge interest retroactively if my invoice never mentioned it? Not at your own chosen rate. If your paperwork was silent, you’re generally limited to your state’s statutory rate from the date the debt became due, which is the annual figure in the table above. You can ask the customer to agree to more, and some will, but you can’t impose it unilaterally after the fact.
What’s the difference between a late fee and interest? A flat late fee is a one-time charge stated in your terms and is usually analyzed as liquidated damages, meaning it has to be a reasonable estimate of what the late payment costs you. Interest accrues over time and is analyzed under your state’s interest and usury rules. Most owners charge both, and there’s nothing wrong with that as long as the total doesn’t start looking punitive.
Is 1.5% per month reasonable everywhere? As a contract rate on a B2B invoice, yes in practice. It’s the most widely used number in US commercial terms and courts see it constantly. The exceptions to check are states with low written-contract caps, Illinois and Michigan in particular, where you want to confirm which commercial carve-out applies to you.
Do I have to charge interest at all? No. Plenty of owners charge zero and rely on other pressure instead, like pausing work or declining renewal. If that’s your route, can I refuse more work until I’m paid walks through where that’s safe and where it isn’t.
Does charging interest hurt the relationship with a client I want to keep? Charging it doesn’t. Springing it does. A rate that’s been in your terms since day one reads as policy, and policy is impersonal in a way that a one-off demand never is. The owners who damage relationships are the ones who tolerate late payment silently for a year and then send an angry invoice with 12 months of back-interest on it. How to chase invoices without losing the client covers the tone side of this.
Does accrued interest extend how long I have to sue? No. Interest accruing on the balance doesn’t restart the statute of limitations. The clock runs from the breach, usually the missed due date, and it varies by state and by whether the agreement was written or oral. See unpaid invoice statute of limitations by state before you decide an old invoice is still worth pursuing.
How does interest work if my customer is in a different state than I am? Usually the governing-law clause in your contract decides, and if you don’t have one, the answer depends on where the contract was formed and performed. This is the main reason to put a governing-law line in your standard terms. Recovering an unpaid invoice from an out-of-state customer covers the practical side.
Should I charge interest on an invoice I’m probably going to write off anyway? Generally no. Interest on a receivable you don’t expect to collect inflates your AR and makes your write-off messier at tax time. When to write off an unpaid invoice covers the timing, and IRS Topic 431 covers the tax treatment of the principal.
A note on what this is and isn’t
This is a reference for planning your invoice terms, not legal advice, and ti3 doesn’t practice law. Statutory rates change, several of the ones above float on a published schedule, and the carve-outs that decide whether a commercial transaction escapes a usury cap are genuinely state-specific. Confirm against the statute cited before you rely on a number in a demand letter or a court filing, and talk to a local attorney if the invoice is large enough to matter.
We also sell software in this space, so the bias is worth naming. ti3 runs a structured 5-week recovery sequence on overdue invoices in your name. It doesn’t set your interest rates, doesn’t provide legal advice, and doesn’t make phone calls. What it does is make sure the follow-up actually happens on schedule, which is the part most owners lose to being busy.
Related reading: How to charge a late fee legally by state goes deeper on late fees specifically. Can I charge interest on a late invoice as a sole proprietor covers the solo-operator case. If you want to see what a structured recovery sequence looks like, /recover/ walks through it, and /will-you-get-paid/ will tell you what your odds actually are on a specific invoice.
Sources: 28 U.S.C. § 1961, Prompt Payment, US Treasury Bureau of the Fiscal Service, 6 Del. C. § 2301, 815 ILCS 205, MCL § 438.31, N.Y. CPLR § 5004.