What is a late payment fee?
Written by Arnon Shimoni
✓ Expert
Last updated on:
A late payment fee is the charge a seller adds when an invoice is paid after its due date, either as a fixed amount or as interest on the overdue sum. An outstanding payment is any unpaid invoice. An overdue payment is an outstanding payment past its due date.
Example: an invoice for €2,000 is due on 30 April. On 15 May it is still unpaid. The invoice is 15 days overdue. If the terms say 1.5% per month, the late fee is €15 for that half month. In the EU, if no fee is agreed, the seller can charge statutory interest and a fixed €40 for recovery costs instead.
At a glance | |
|---|---|
Forms | Flat fee, interest per month or per day, or both |
EU B2B statutory rate | Reference rate plus at least 8 percentage points, plus €40 fixed (Directive 2011/7/EU, as of October 2026) |
Starts | The day after the due date, unless a grace period is written into the terms |
Billed | On the next invoice or as a separate late-fee invoice |
Outstanding payment vs overdue payment
Every overdue payment is outstanding, but not every outstanding payment is overdue. The difference is the due date.
Invoice | Issued | Due | Today | Status |
|---|---|---|---|---|
INV-1041, €2,000 | 1 April | 1 May | 20 April | Outstanding, not yet due |
INV-1038, €750 | 15 March | 14 April | 20 April | Outstanding and overdue by 6 days |
INV-1035, €3,200 | 1 March | 31 March | 20 April | Outstanding and overdue by 20 days; late fee applies |
Finance teams track both. Outstanding is the accounts receivable balance. Overdue is the part of it that needs a reminder, a fee or a collections step.
How late payment fees are calculated
There are two methods and many contracts combine them.
Flat fee. A fixed amount per overdue invoice, or per reminder. Simple to apply and to explain. In the EU, €40 is the statutory minimum for recovery costs on a B2B invoice.
Interest. A rate applied to the overdue amount for the time it is overdue. Stated per year, per month or per day. Daily interest = overdue amount × annual rate / 365 × days overdue.
EU statutory rules for B2B invoices, as of October 2026: if the contract does not set a rate, the creditor can charge simple interest at the reference rate plus at least 8 percentage points. For the euro area the reference rate is the ECB main refinancing rate in force on 1 January or 1 July of the half-year in which the invoice fell due. On top of that the creditor is entitled to a fixed €40 per invoice for recovery costs, and to reasonable further costs above that. Example: €2,000 overdue by 30 days at a reference rate of 2.15% plus 8 points = 10.15% a year, so €2,000 × 10.15% / 365 × 30 = €16.68 in interest, plus €40. National law sets the detail, so check the rules in the debtor's country.
When to charge a late fee
The due date is the legal trigger, but the practical trigger is the dunning sequence. A common pattern: reminder 3 days before the due date, a notice the day after, a second reminder at 7 days overdue, the late fee applied and announced at 14 days overdue, a final notice at 30 days, then service suspension or hand-off to collections. A short grace period before the fee keeps good customers who pay a few days late from being charged for a bank delay. Whatever the sequence, it should be written in the terms and applied by the billing system in the same way to every customer, because a fee applied inconsistently is the first thing a customer disputes.
Late fees on the invoice vs a separate invoice
Add to the next invoice | Separate late-fee invoice | |
|---|---|---|
When it works | Recurring customers with a monthly invoice | One-off or final invoices; customers that need a document per charge |
Tax | Interest is generally outside the scope of VAT; a flat administrative fee may be taxable. Show it on its own line either way | Same, with the treatment stated on the document |
Reconciliation | One payment settles both | Two open items; the fee is often paid last or disputed |
Customer reaction | Less friction | More visible, which is sometimes the point |
Where Solvimon fits
Late fees and interest are configured per customer or per billing entity in Solvimon, computed from the invoice due date by the dunning sequence, and added to the next invoice or issued as a separate document with the right tax treatment.
Frequently asked questions
What is a late payment fee?
A charge added when an invoice is paid after its due date, as a flat amount, as interest on the overdue sum, or both.
How much can you charge as a late payment fee?
What the contract says, within national limits. For EU B2B invoices with no agreed rate, the statutory entitlement is the reference rate plus at least 8 percentage points in interest and a fixed €40 for recovery costs, as of October 2026. Consumer contracts are capped more tightly in most countries.
Is a late payment fee taxable?
It depends on the jurisdiction and on what the fee is. Interest for late payment is generally treated as outside the scope of VAT in the EU. A flat administrative fee can be treated as a taxable supply in some countries. Check the rule where the invoice is issued.
What is the difference between outstanding and overdue?
Outstanding means unpaid. Overdue means unpaid and past the due date. An invoice issued today with Net 30 is outstanding for 30 days before it can become overdue.
When does a payment become overdue?
The day after the due date stated on the invoice. If the terms include a grace period, the late fee starts after the grace period, but the invoice is overdue from the day after the due date.
Related
Payment terms. The due date and conditions the late fee is measured against.
Dunning. The reminder sequence that applies the fee.
Accounts receivable. Outstanding and overdue balances by age.
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