No one is a fan of late payment fees. For sellers, they signify anemic cash flows, and for buyers, they’re both embarrassing and financially draining. But late payment fees are an unfortunate, necessary evil in the realm of accounts receivable (A/R)—at least if you’re trying to be paid for your work.
By handling these penalties diplomatically—particularly in the phrasing of your policies and reminder notifications—you can offset their negative consequences while encouraging prompt payments from your customers. In this article, we’ll delve into the strategy behind on-invoice late payment fee wording while also offering some examples and templates you can repurpose for your organization.
Of course, given the legal implications tied to late payment wording and policies, you should always discuss them with your legal counsel and ensure that they comply with any and all applicable regulations.
Why is late fee wording important?
Late fees are a valuable tool that can help you capture outstanding and overdue revenue, decreasing the likelihood of incurring bad debt. But when these measures are done poorly or lack sufficient empathy, you run the risk of alienating existing—and potentially repeat—customers. At the same time, your invoice late fee wording is commonly what gives you the contractual authority to assess these charges. So any ambiguity or unfortunate phrasing may not only leave you unable to enforce your fee schedule, but also place you in an unfavorable legal position.
Types of late payment fees
Depending on how you’ve structured your payment terms, you might choose to assess these financial penalties just once—when the due date is passed—or on an iterative basis (e.g., weekly, monthly) until full payment is rendered. And commonly, you’ll calculate your late fees using one of three strategies:
- Flat rate: a fixed cost is added to the outstanding balance
- Percentage: the cost of the penalty is calculated as a percentage of the initial invoice total
- Mixed: this fee schedule incorporates both a flat fee and a percentage charge, commonly using one method for the initial assessment and switching methods as time passes
Where to display late payment fee wording
Bare minimum, you’ll need to include your late fee wording on invoices and other sales records, making sure that it’s well documented that the customer was aware of and agreed to the late fee schedule. The easiest method to achieve this is to have these details prominently displayed at the time of purchase. For example, on the confirmation page of an online order form or immediately above the signature on a physical contract.
Of course, you never want a customer to be surprised when they receive a bill, so we here at Invoiced by Flywire recommend that you share the details of your late payment fees and other payment terms frequently throughout the entire invoice-to-cash (I2C) cycle. Specifically, you should include it on:
- Order forms
- Purchase orders
- Customer portals
- Invoices
- Dunning messages
Late payment fee policy template
It cannot be overstated that any messaging you communicate to current or potential customers regarding your late payment fees should be vetted by legal counsel and operate in full compliance with regulatory requirements. Bearing that in mind, here is a late fee policy template that you might consider as a starting point for creating your own.
The following Late Payment Fee Policy dictates the terms of payment for services and products provided by [<<Insert your company name>>]. By making a purchase and/or accepting an invoice, the client agrees to the following payment terms:
- Payment Due Date: payments are due within [<<Insert day number>>] calendar days of receiving an invoice unless otherwise specified
- Late Payment Fee: if a payment is not received prior to midnight on the established payment due date, the client will incur a late fee of $ [<<Insert specified dollar amount>>]
- Additional Charges: if the invoice remains unpaid after 40 calendar days, an interest rate of [<<Insert percentage number>>] % per month will be added and prorated daily
- Further Actions: if non-payment continues, [<<Insert your company name>>] may pursue legal action to collect the overdue amount, and the client will bear any associated legal or collection costs
Ideally, you should include language like this in all hiring or purchasing contracts, on your company website, and in any formal listing of your payment terms.
Examples of late payment fee wording
As previously stated, you’ll want to communicate your policies frequently through multiple touches. And to help simplify that process—along with any corresponding discussions with legal counsel. We also offer these late payment fee example messages.
Late fee wording for purchase orders, order forms, and customer payment portals
Thank you for considering [<<Insert your company name>>]! Please note that full payment is required within [<<Insert day number>>] calendar days of purchase. Overdue payments will be subject to our late payment fee policy as described on our website.
Late fee wording for invoices and other sales-adjacent documents
As always, we appreciate your business! Please note that full payment is required within [<<Insert day number>>] calendar days of the included purchase date. Overdue payments will be subject to our late payment fee policy, which can be found in your purchasing contract or on our website.
Late fee wording for dunning notice to be sent prior to payment due date
Hi [<<Insert client contact name>>],
It looks like we haven’t yet received your payment of [<<Insert owed amount>>] for Invoice [<<Insert invoice number>>] incurred on [<<Insert purchase date>>]. As a friendly reminder, you’ll need to provide full payment by [<<Insert due date>>] to avoid incurring any additional charges per our late payment policy.
If you’ve already sent your payment, please feel free to disregard this message. And if you believe that you might be unable to close out this invoice before the set due date, please reach out to us, and we can discuss the situation.
Late fee wording for dunning notice to be sent after a fee has been applied
Hi [<<Insert client contact name>>],
Unfortunately, we still have not received your payment of [<<Insert owed amount>>] for Invoice [<<Insert invoice number>>] incurred on [<<Insert purchase date>>]. This payment was due by [<<Insert due date>>], and since that date has now passed, we have assessed your account with a late fee of [<<Insert either the dollar amount for your flat fee or as determined by the appropriate percentage of the original purchase>>] per our stated policy.
We kindly request prompt payment to avoid any additional charges. Please settle this overdue balance at your earliest convenience.
Late payment fees made easy with Invoiced
To promote consistent, on-time payments, you’d be hard-pressed to find a more functional solution than our Accounts Receivable Automation platform. Our software lets you set up customized late fee policies that automatically apply either a flat fee, percentage, or both to your overdue invoices. And our Smart Chasing feature enables you to set the cadence, messaging, and tone for each of your dunning messages, making it easy to communicate your late payment fee policies and encourage prompt payments with no additional labor.
At the same time, our solution delivers automated invoice workflows and AI-powered cash application that accelerate cash flows, while our Customer Self-Serve Portal provides a seamless, intuitive buying experience for your customers. We’ve even updated our software with the global payment capabilities of Flywire software to support transactions in 140 currencies across 240 countries and territories.
If you’d like to simplify and formalize your late payment fee processes while encouraging more consistent, prompt payment from customers, schedule a demo of our software today.
Late fee wording FAQ
How do you write messaging or policy for a late payment fee?
Before taking any action, speak with legal counsel and review any regulations that outline how late fees should be handled in your region. Armed with this information, draft messaging that clearly summarizes your chosen policy, defining payment terms, grace periods, fee schedules, and any additional charges or penalties that might be incurred for non-payment. Keep your statement as short, clear, and empathetic as possible.
How do you phrase a late fee message on an invoice?
At the point of generating an invoice for a given sale, the customer should have already seen and agreed to your late payment fee policy. As such, you do not need as thorough a description of your terms. Instead, simply remind them of the agreement and identify on the invoice the sale date, payment due date, amount owed, and a notice that overdue payments will incur additional fees.
How do I tell the customer about late fees?
You should inform any current or potential customers of your late payment fee policy both early and often. Identify the general details on any order forms or purchase orders that might be shared prior to a given sale. And you should share the full details of the policy on any points of sale, including contracts and customer payment portalss.
What’s a reasonable late fee?
The reasonableness of a given late fee will be highly dependent on your company’s industry, market, and region. That being said, in most cases a fee of 1% – 2% assessed monthly will suffice. And for those organizations that prefer a flat fee, set one that is roughly 1% to 2% of your average sale.
Do I need to notify clients before charging a late fee?
Yes. For you to enforce any manner of late fee policy, your customer will need to be aware of and agree to these terms before the sale is finalized, and ideally, you’ll want this consent documented. Pay careful attention when drafting and posting your late fee payment messaging, as these exact words will be what provides you with the legal, contractual authority to levy any penalties against your customers for non-payment.
