How much interest can you charge on overdue invoices without breaking the law? Here is everything you need to know plus how to make your clients pay on time. Charging late fees on overdue invoices might seem like a small decision, but it is one that can be agonizing. Understanding what is behind the late payment can help you know whether to ding the customer for it or establish new strategies for invoicing.

However, when an account is overdue or a payment is late, businesses are allowed in Canada to charge interest compounded monthly at the average bank rate plus 3 percent from the due date to the day before the date that payment is received.

Even though it can be quite tempting to slap late fees on an invoice that is been sitting unpaid, it is very pertinent to be careful. Note that you can only charge late fees or interest if the original contract for products and services allows it. Always ensure when you draw up your contract that you explicitly state the amount of late fees that can be charged (usually a percentage of the outstanding balance accruing monthly), and mention the time frame governing late fees as well.

Even if you are mandated by law to charge the late fees, you may find you actually get paid more quickly if you offer the customer incentives for paying (such as a discount if payment is received within a short time frame), rather than threatening the penalty of late fees. You also can’t really predict whether late fees will force a customer to cough up the money they owe you if you don’t know why the customer is paying late.

If your customer contracted for services but is not able to pay, have it in mind that the circumstances may govern your response. Maybe the customer has hit a temporary tough patch, and all that is required is a reasonable payment plan. If that same customer continues to pay late, though, you may want to explain politely that you don’t work for free and move on.

Also, note that some customers pay late because they can. If you are a small business, large customers may realize they hold all the cards and withhold pay just for the heck of it. Others might simply view your invoice as low priority. In both cases, you may have to remind your customers that you are not in the business of extending credit. Always be ready to let these customers go.

Finally, some customers refuse to pay because they are angry. In this case, the temptation may be to escalate the conflict, but in fact, you should do the opposite. Take your time to find out why the customer is angry, and go out of your way to fix the problem. You may even choose to give the customer a cash discount — which could be well worth it if you retain the customer’s business and good will.

Charging late fees is not the only way to deal with delinquent accounts or overdue invoices. Note that by organizing your collection process and assigning an employee as a point person to reach out to late customers, you may be able to make payment arrangements. You can also create a script to help your collection representatives be consistent, and make sure they document every contact with the customer fully.

Assigning late fees is not always the best possible choice when you are trying to get paid on a delinquent invoice. Establish payment protocols and procedures ahead of time, and try other routes to get paid. Be clear from the beginning about your invoicing procedures so your customer knows exactly what is expected.

4 Simple But Effective Ways to Ensure Clients Pay on Time

Note that establishing standard policies and procedures can help encourage customers to pay faster to keep your business cash flow moving. All these boil down to staying on top of your invoices, following up with customers, and having customer-friendly policies in place to make sure you get your money without alienating your customers. These procedures may include;

  1. Tracking Unpaid Invoices

Immediately you have the foundations of your accounts receivable in place, it is time to monitor the situation. If you have a lot of customers, then you run the risk of eventually facing late payments and uncollected accounts. Have it in mind that some businesses ignore these delinquencies or don’t prioritize them, and others focus on them on a regular basis.

Note that you can’t collect unpaid invoices if you don’t know you have them. That is where tracking comes into play. Create the habit of tracking invoices and following up on late ones. Even if you can’t collect 100 percent of your overdue accounts, doing something is better than doing nothing.

  1. Send Email Reminders

Indeed on-time payment from your clients protects your business’s cash flow, but if your clients lose their invoices or get distracted by other matters, they may forget to pay. To reduce late payments and tighten the payment term, it is imperative you send out email reminders, which offer a softer, less-direct approach to collections.

Note that these reminders go out instantly, unlike mailed reminders which add postage costs and take time for delivery. In addition, it is a non-invasive way to get your customer’s attention without making an uncomfortable phone call. You can send polite reminders to clients in case they simply forgot to pay.

In some situations, all a client requires is a gentle nudge to make the payment. You should also consider including a copy of the overdue invoice with the email to help remind the customer of the bill and give them the information they need to pay it.

Notably, online invoicing services often let you set up automatic email reminders if the invoice is not paid in a certain amount of time. With this option, you don’t have to spend a lot of time tracking down late payments and sending the email reminders manually. Your software handles the work for you, giving customers the reminders they need to get moving on their payments.

If the customer ignores your initial email reminder, it may be time to step it up and use stronger yet still polite and professional language. You should still keep the correspondence professional because it reflects on your business. However, it might be time to let the client know you are expecting your payment immediately and you plan to take action if the account doesn’t get settled.

Ensure you make the customer understand what you plan to do next. For instance, you might say, “If we do not receive payment by August 10, we will send your past-due account to collections.” That can be enough to encourage the customer to pay up so they don’t face any additional collections activity.

  1. Automate Your Invoicing

Have it in mind that automating your invoices and sending online invoices can help cut down on the chances of late payments. With these services, you are able to send out invoices quickly to encourage customers to pay right away.

When you invoice a customer right after the product or service gets delivered, it is fresh on your customer’s mind, and that can speed up payment. A lot of businesses offering this service let you issue invoices on the go and set up automated email alerts to remind clients when their account is overdue. Most of the systems also store your invoices in one place, so you can have a clear picture of those that have not been paid.

  1. Streamline Payment Options

Note that some clients intentionally let payments go beyond the due date because the payment options aren’t convenient. Have it in mind that expanding the payment methods you accept can help proffer solutions to some of the delinquent accounts.

Look at the payment options you give your clients now. Do you offer several options or only one? Consider opening it up to other payment methods if the options are limited. This includes cash, cheques, credit cards, electronic funds transfers, wire transfers, or payment remittance through third-party systems.

Always remember that flexibility in how you receive your clients’ payment information can also help. Some customers tend to find it easier to provide credit card information over the phone or physically deliver a cheque to a location other than your main storefront.


Charging late fees may not be the only way to deal with delinquent accounts. By organizing your collection process and assigning an employee as a point person to reach out to late customers, you may be able to make payment arrangements. Consider offering incentives for early payment, and offer payment plans upfront. You might demand 50 percent of your fee before you start on a new project, invoicing for the remainder when you deliver.

In addition, always be clear from the beginning about your invoicing procedures so your customer knows exactly what is expected. Assessing late fees is not always the best possible choice when you are trying to get paid on a delinquent invoice. Create payment protocols and procedures ahead of time, and try other routes to get paid.

Frequently Asked Questions

  1. What Is An Overdue Invoice?

An overdue invoice is one a company is yet to pay and is past the invoice due date. Failure to pay the invoice by a due date makes an invoice overdue. These invoices might carry a penalty late fee that customers must pay in full.

  1. How Do You Follow Up On An Overdue Invoice?
  • Follow up at the Right Time.
  • Include All Invoice and Payment Details.
  • Tailor the Language.
  • Use Late Penalties.
  • Offer a Payment Plan.
  • Be Polite.
  • Automate Reminders.
  • Enlist Help.
  1. What Should I Write On Overdue Invoice?
  • Invoice number and date.
  • Amount owing.
  • Payment terms such as late fees.
  • Reminders of previous letters.
  • Instructions for payment (include links in emails)
  • Your contact information.
  1. Can You Charge Interest On Overdue Invoices?

Well, it depends, because a vendor can charge interest on an unpaid invoice but should only do so when there is a contract or agreement in place that allows for it. Otherwise, there is no legal obligation for the client to pay the additional fee, and adding this charge may harm the business relationship and affect future work opportunities.

  1. How Long Can You Chase Payment For An Overdue Invoice?

You can chase an unpaid invoice for up to 6 years. Even under a simple contract, you have the legal right to chase a debt for up to 6 years.

  1. When Should You Send Overdue Invoice Templates?

We recommend Early Overdue emails are sent at a frequency of once every 1-2 weeks so that you project credit control competence to your customer but without harassing them.

  1. How Much Interest Can You Charge For Overdue Invoices?

Well, it should depend on your company’s policy but don’t charge more than 10% interest per year. Some states restrict the amount you can charge in late fees, but you’re likely safe if you cap rates at 10%. Try waving a carrot instead of a stick by offering a discount for either full payment upfront or within 30 days.

  1. What Is A Past Due Invoice?

A past due invoice is a billing that has not been paid as of its due date. If a business extends credit to its customers, it is likely to experience situations where it must collect a past due invoice. It is essential to do so, since not receiving payments on time can cause major cash flow problems.

  1. What Is An Outstanding Invoice?

An outstanding invoice is a payment that a customer has yet to pay. You may send out an outstanding invoice before the actual payment due date, so you can collect the payment in a timely manner.

  1. How Do I Get My Money From Overdue Invoices?
  • Send Polite Reminders.
  • Pick up the Phone.
  • Go Directly to the Payment Source.
  • Cut off Future Work.
  • Hire a Collection Agency.
  • Take the Client to Small Claims Court.
  • Sue the Client in Superior Court.
  • Go to Arbitration.
  1. Do I Have To Pay A Late Invoice?

Invoices must always include the invoice date as well as the due date. By setting a due date, this encourages the client to pay you within a certain time frame. The general rule is 30 days from the invoice date. However, you can discuss this with your customer and either make it shorter or longer than 30 days.

  1. Should I Always Take Legal Action For A Past Due Invoice?

Well, to a large extent, the decision to take legal action or not for a past due invoice is yours to take. No one can rightly advise you in this regard.

  1. How Long Do You Legally Have To Pay An Invoice?

Unless you agree to a payment date, the customer must pay you within 30 days of getting your invoice or the goods or service.

  1. What Is An Acceptable Late Fee For An Invoice?

Business owners have the option to charge a flat rate or a monthly finance charge, usually a percentage of the overdue amount. Companies typically charge a 1% to 1.5% late fee.

  1. What Is A Proforma Invoice And How Do You Create One?

A pro forma invoice is a preliminary bill of sale sent to buyers in advance of a shipment or delivery of goods. The invoice will typically describe the purchased items and other important information, such as the shipping weight and transport charges.

One way of creating a proforma invoice is to adjust an invoice template in Word or Excel to become a proforma invoice template by removing the invoice number and changing the title of the document. You then have to save the proforma invoice, attach it to an email, and manually convert it to a finalized invoice.

  1. How To Create A Sundry Invoice?
  • Search invoice templates
  • Choose an invoice template of your choice from any online platform
  • Add unique invoice number
  • Insert billing generated date
  • Include all expenses
  • The due date can be re-calculated (add comments if any)
  • Exchange rate in case of foreign currency
  • Generate final invoice for your account
  1. Who Are Sundry Invoice Creditors?

Any supplier who provides the products, services, or any items that a business firm opts for their business facility on a credit basis is considered as a sundry creditor. So also, the suppliers of other items described as expenses on a credit basis are also considered as sundry creditors.

  1. What Happens If An Invoice Is Not Paid?

When an invoice is not paid, the Late Payments Act will always come to your rescue, you’re entitled to claim late payment interest and compensation for debt recovery costs, even if your invoice doesn’t state it.

  1. Why Use An Invoice Template?

When you make use of an invoicing template it will definitely save you time and ensures you get paid on-time. This ensures that your client receives their bill quickly and can pay your invoice on time.

  1. How Do You Politely Follow Up A Payment?

In order to request payment professionally, it’s important to first make sure there was no error or miscommunication about the invoice. Send a polite email to your client explaining that the payment is now past due and ask to make sure they received the initial invoice and there were no problems with it.

  1. What Do You Say When An Invoice Is Overdue?

Phrases like “urgent matter” or “immediate attention” will convey the seriousness of the situation. Your subject line can include phrases like “Action Required” or “Important.” Be direct. Include in the first line of your letter: We would like to inform you that your invoice is now 60 days overdue.

  1. How Long Is It Until An Invoice Is Classed As A Bad Debt?

In practice, invoices become eligible for bad debt write-off 9 months from the original invoice date.

  1. How Long Before Bad Debt Is Written Off?

If the debt is partially worthless, you have three years from the date you filed the original tax return, or two years from the date you paid the tax. If it was totally worthless, the IRS gives you seven years from the date of the original return and two years from the date you paid the tax.

  1. Why It Is Risky To Have Outstanding Invoices?

It is risky to have outstanding invoices because the outstanding invoices can ruin your business credit in the market. Based on the outstanding invoices, vendors can lower the company’s credit limit or stop accepting orders from that client’s account.

  1. Why Is It Important To Follow Up On Outstanding Payments?

By following up before the late fee kicks in, you are trying to help them and you are acknowledging that there is “a lot going on at the moment”. Good follow up will make sure you remain polite and been respectful to your customer.

  1. Can A Client Refuse To Pay Old Invoices?

A client cannot simply refuse an old invoice due to its age. If the 6-year term holds, the client will be required to settle his/her outstanding debt. If the client refuses payment because of any valid reason, the client can face legal proceedings.

  1. How Do I Sue Someone For Not Paying An Invoice?

In order to turn your dispute over an unpaid invoice into a lawsuit, you will need to prepare your evidence – including the original invoice, proof that the services were provided, and records of any attempts to collect the payment owed – and state your claim in a document called a complaint, which is filed with the court.

  1. Is It OK To Back Date An Invoice?

You may want to do this to speed up payment from your client e.g., your invoice gives them 30 days to pay so you date it 29 days ago. The gain from backdating an invoice is early payment. In this instance, it is not legal.

  1. What Is The Law On Payment Of Invoices?

Unless agreed otherwise, the law states that payment must be received « within 30 days of getting your invoice, or the goods or service » (whichever is later). Some firms, especially larger ones, will demand longer payment terms. If they are longer than 60 days then they must be fair to both businesses.

  1. Are Invoices Legally Binding?

An invoice is not a legal document on its own. While invoicing is an important accounting practice for businesses, invoices do not serve as a legally binding agreement between the business and its client. There is no proof on the invoice itself that both parties have agreed to its terms.

  1. Is It Legal To Delete Invoices In Invoicing Software?

Generally speaking, you should never delete an invoice. In cases where you want to delete or amend an invoice, a credit note will usually suffice as the solution. A credit note allows you to effectively – and legally – cancel an invoice.

  1. How Do You Check The Credit Rating Of A Company?

Several business credit reporting agencies require you to pay to review the information they have on your business. Business owners can, however, access information about their Dun & Bradstreet, Experian and Equifax business credit reports with free Nav account.

  1. How Long Does A Client Have To Pay An Invoice?

If no agreed-upon payment date has been established, a customer must pay a company within 30 days of receiving an invoice or the goods or service. A company can use a statutory demand to formally request payment for due payments.

  1. Do I Have To Pay A Disputed Invoice?

In case of a disputed claim, your debtor has a justified reason not to pay your invoice. For example, because you have not fulfilled agreements from the contract. To ensure that your bill is still paid, the payment dispute must first be resolved.

  1. What Should You Put On An Invoice For Payment Terms?

Basically, invoice payment terms spell out how you expect to be paid, and might include details like:

  • Accepted forms of payment (maybe you won’t take credit cards)
  • The currency you deal in, if you work across borders.
  • Late-payment penalties, if you charge them.
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