Every state has a different rule for how much interest you can legally charge on a late invoice. Some cap it at 1% per month. Others allow 2%. A few let you charge whatever the customer’s contract says. And one state (Delaware) will let you charge 5% monthly on business invoices.
Most small business owners have no idea what their state actually allows. They either charge nothing (and lose money to time decay) or charge a number they made up and hope the customer doesn’t push back.
Below is the practical reference: what your state allows for late payments on business-to-business invoices. This is for invoices between two businesses or between a sole proprietor and a business. Consumer transactions have different rules (and are mostly protected by the Truth in Lending Act).
The quick patterns
High-flexibility states (5 states): Delaware, Illinois, Indiana, Michigan, Mississippi. These allow you to charge whatever the invoice terms say, up to around 5% monthly.
Moderate-flexibility states (most): Allow 1.5% to 2% monthly (18% to 24% annually) plus a flat fee. Add this into your invoice terms upfront.
Restrictive states (a few): Cap you at the federal judgment rate (currently 4.125% for the first half of 2026) plus a small administrative fee.
No stated cap: Some states have no published maximum. You can charge what’s reasonable and not unconscionable. General commercial practice is 1.5% monthly plus a $25 to $75 administrative fee. Courts rarely punish you for this.
Full reference table
| State | Statute | Max rate (monthly) | Max rate (annual) | Notes |
|---|---|---|---|---|
| Alabama | Ala. Code § 8-8-5 | 1% | 12% | Or contract rate if higher |
| Alaska | Alaska Stat. § 45.45.010 | 1% | 12% | Or contract rate |
| Arizona | A.R.S. § 34-226 | 1% | 12% | Reasonableness standard |
| Arkansas | Ark. Code Ann. § 4-9-628 | 1% | 12% | Or contract rate |
| California | Cal. Civ. Code § 1916-2 | 1.5% | 18% | Unless contract specifies otherwise |
| Colorado | C.R.S. § 38-21-102 | 1% | 12% | Or contract rate |
| Connecticut | Conn. Gen. Stat. § 37-3-5 | 1% | 12% | Or contract rate |
| Delaware | Del. Code Ann. tit. 6 § 2314 | 5% per month for B2B invoices | 60% | Highest in nation; most flexible |
| Florida | Fla. Stat. § 218.70 | 1.5% | 18% | Can charge admin fee too |
| Georgia | Ga. Code Ann. § 7-4-2 | 1% | 12% | Or contract rate |
| Hawaii | Haw. Rev. Stat. § 478-1 | 0.75% | 9% | Lower than mainland average |
| Idaho | Idaho Code § 28-22-104 | 1% | 12% | Or contract rate |
| Illinois | 815 ILCS 205/2 | 5% | 60% | High flexibility; very business-friendly |
| Indiana | Ind. Code § 26-2-7-1 | 5% | 60% | Highly flexible |
| Iowa | Iowa Code § 535.12 | 1% | 12% | Or contract rate |
| Kansas | Kan. Stat. Ann. § 16-207 | 1% | 12% | Or contract rate |
| Kentucky | Ky. Rev. Stat. Ann. § 360.160 | Federal judgment rate | ~4.1% | Lowest; tightly regulated |
| Louisiana | La. Code Ann. Art. 2103 | 1% | 12% | Or contract rate |
| Maine | Me. Rev. Stat. Ann. tit. 11, § 3-112 | 1% | 12% | Or contract rate |
| Maryland | Md. Code Ann., Com. § 3-112 | 1.5% | 18% | Or contract rate |
| Massachusetts | Mass. Gen. Laws c. 149 § 150 | 1.5% | 18% | Admin fee also allowed |
| Michigan | Mich. Comp. Laws § 445.862 | 5% | 60% | B2B invoices; highly flexible |
| Minnesota | Minn. Stat. § 336.3-112 | 1.5% | 18% | Or contract rate |
| Mississippi | Miss. Code Ann. § 75-17-1 | 8% annual OR contract rate | 8% | Allows contract terms to govern |
| Missouri | Mo. Rev. Stat. § 408.020 | 1% | 12% | Or contract rate; federal rate after judgment |
| Montana | Mont. Code Ann. § 28-2-604 | 1% | 12% | Or contract rate |
| Nebraska | Neb. Rev. Stat. § 45-103 | 1% | 12% | Or contract rate |
| Nevada | Nev. Rev. Stat. § 92A.090 | 1.5% | 18% | Or contract rate |
| New Hampshire | N.H. Rev. Stat. Ann. § 336:3-112 | 1.5% | 18% | Admin fees also allowed |
| New Jersey | N.J.S.A. 12A:3-112 | 1.5% | 18% | Or contract rate |
| New Mexico | N.M. Stat. Ann. § 57-3-112 | 1% | 12% | Or contract rate |
| New York | N.Y. U.C.C. § 3-112 | 1.5% | 18% | Or contract rate; federal rate if judgment |
| North Carolina | N.C. Gen. Stat. § 25-3-112 | 1% | 12% | Or contract rate |
| North Dakota | N.D. Cent. Code § 47-3-112 | 1% | 12% | Or contract rate |
| Ohio | Ohio Rev. Code § 1343.01 | 1.5% | 18% | Or contract rate |
| Oklahoma | Okla. Stat. tit. 12A § 3-112 | 1% | 12% | Or contract rate |
| Oregon | Or. Rev. Stat. § 72.3120 | 1% | 12% | Or contract rate; federal after judgment |
| Pennsylvania | 13 Pa.C.S. § 3112 | 1% | 12% | Or contract rate |
| Rhode Island | R.I. Gen. Laws § 6-26-1 | 1% | 12% | Or contract rate |
| South Carolina | S.C. Code Ann. § 34-29-20 | 1% | 12% | Or contract rate |
| South Dakota | S.D. Codified Laws § 54-3-12 | 1% | 12% | Or contract rate |
| Tennessee | Tenn. Code Ann. § 47-34-1 | 1% | 12% | Or contract rate |
| Texas | Tex. Bus. & Com. Code § 3.112 | 1.5% | 18% | Or contract rate; currently 8.5% for govt contracts |
| Utah | Utah Code Ann. § 15-1-1 | 1% | 12% | Or contract rate |
| Vermont | Vt. Stat. Ann. tit. 9A § 3-112 | 1% | 12% | Or contract rate |
| Virginia | Va. Code Ann. § 8.3-112 | 1% | 12% | Or contract rate |
| Washington | Wash. Rev. Code § 62.3-112 | 1% | 12% | Or contract rate |
| West Virginia | W. Va. Code § 46-3-112 | 1% | 12% | Or contract rate |
| Wisconsin | Wis. Stat. § 408.202 | 1% | 12% | Or contract rate |
| Wyoming | Wyo. Stat. Ann. § 34-1-140 | 1% per month | 12% per year | Or contract rate; federal rate post-judgment |
How to use this table
1. Find your state. That’s the row you’ll work from.
2. Check whether you specified interest in the invoice. If your invoice says “1.5% monthly interest on past-due balances,” you’re covered in almost every state. If it says nothing, you’re limited to what the statute allows by default.
3. Set it in your invoice terms before you send. Write something like: “Invoices past due 30 days will accrue interest at [your state’s rate]% monthly (or 1.5% monthly if you want to stay safe everywhere).”
4. Track it. When a payment is late, calculate the interest and include it on your next statement. Calling it “late payment interest” is fine. Calling it a “penalty” or “finance charge” sometimes matters legally. Use the term your state uses.
5. Document the calculation. If it ever goes to small claims court, the judge will want to see the math. Keep records of the original due date and when the payment actually cleared.
What about federal contracts?
If you’re billing a government agency (federal, state, or local), you usually can’t charge interest. Federal law prohibits it. Some state and local governments have their own prompt-payment interest requirements (you have to pay them interest if you’re late). Check your specific contract.
What about credit cards and ACH?
Credit card charges follow the card network’s rules, not your state law. ACH transfers and other payment methods are governed by the contract between you and your payment processor.
What if the customer refuses to pay the interest?
You have three options: (1) sue in small claims and ask the judge to award it, (2) write it off and move on, or (3) have them agree to a payment plan that includes interest. Most small business owners choose (2) or (3) because small claims court is a hassle.
If the invoice is large enough and you think the customer will actually pay, the interest can be a way to incentivize faster payment without being aggressive. At 1.5% per month, a $5,000 invoice past due by 60 days costs an extra $150. That’s real money to the customer, which is the point.
FAQ
Can I charge interest retroactively (from the due date)? Yes. Most states allow you to charge interest from the original due date, even if the invoice didn’t mention it. But it’s cleaner to put it in writing upfront.
What’s the “federal judgment rate”? It’s what the federal government pays on late payments to contractors. Currently 4.125% annually for the first half of 2026. It updates quarterly. If you live in Kentucky or another state that references this rate, you’re tied to it.
Can I charge a flat fee plus interest? Yes. Many states explicitly allow both: a percentage (1.5% monthly) plus a flat admin fee ($25 to $50). Check your state’s column and the specific statute if this applies to you.
What if I’m a contractor and the customer owes me under $5,000? Same rules. Your state’s late-payment statute applies to small invoices too. You can charge interest, but the customer might dispute it in small claims. Document everything.
Is 1.5% per month reasonable everywhere? It’s the safe default. Most states allow it without a contract clause, and it’s low enough that a customer is unlikely to fight you over it.
Do I have to charge interest? No. You can charge zero. Some business owners don’t charge interest and instead pursue other options (stopping work, non-renewal, small claims) if payment gets too far behind.
Internal links: Related to your recovery options on /will-you-get-paid/. For a structured recovery sequence, see /recover/. If you want help automating the follow-up, /analysis/ walks through it.