Maximum Late Fee Laws by State - 2026 Update

Do state late fee caps apply to business invoices?

Most state late fee caps do not apply to business invoices. The figures quoted online for a "maximum late fee by state" are almost all residential landlord-tenant rules, which govern rent and nothing else. For a B2B invoice, 45 of the 50 states and DC set no statutory cap at all: the limit is the fee your contract states, tested against whether a court would call it reasonable rather than a penalty. For late fee rules outside the US, see late fee percentage in New Zealand.

Eleven states set a default legal interest rate instead of a cap. That rate applies only when the contract says nothing about interest, and a written rate in your terms replaces it. Three examples from the verified table: Vermont, 12% a year (9 V.S.A. § 41a); Missouri, 9% a year (Mo. Rev. Stat. § 408.020); Virginia, 6% a year (Va. Code § 6.2-301).

Georgia is the notable exception with a real commercial-account rule: O.C.G.A. § 7-4-16 allows 1.5% a month (18% a year) on commercial accounts 30 or more days overdue, and no written agreement is needed to charge it. South Dakota (18% a year, S.D. Codified Laws § 54-3-4) and Washington (RCW 19.52.020) cap the interest rate itself. Every state in the table below carries its statute so you can check the text yourself.

Which states cap late fees on business invoices?

Six jurisdictions have a statute that caps or sets the rate on a commercial invoice: Alaska, Arkansas, Georgia, Rhode Island, South Dakota and Washington. Eleven set a default interest rate for when the contract is silent, and the other 34 leave the fee to your contract and a reasonableness test. Click a state tile for its rule and source; the same data is in the table and the state list below.

Late fees exist because late payment is normal. Xero Small Business Insights shows how long US small businesses wait past terms, and the rate has barely moved in nine years.

What are the maximum late fees by state?

For business invoices, 45 of the 50 states and DC set no maximum late fee; Georgia sets a statutory 1.5% a month on commercial accounts, and Alaska, Arkansas, Rhode Island, South Dakota and Washington cap the interest rate a contract can charge. The table lists every jurisdiction with its statute. Where a state's residential rent rule is the figure people usually quote, the state list below labels it "residential rent only" so it is not mistaken for a cap on business invoices.

Whether your rate should compound is covered in compound or simple interest on overdue invoices, and the free late fee calculator works out what a specific invoice is owed.

Alabama

Alabama has no statute capping late fees or requiring a grace period on B2B invoices. Courts can still refuse to enforce a late-fee term found unconscionable under general Alabama contract law, so the fee has to be a reasonable one.

Alaska

Alaska's default legal interest rate is 10.5% per year on overdue amounts (Alaska Stat. § 45.45.010). If the contract sets its own rate, it can go up to the greater of 10% or 5 points above the 12th Federal Reserve District's member-bank advance rate, and contracts over $25,000 principal are exempt from the cap. No statutory grace period applies.

Arizona

Arizona has no maximum late fee and no minimum grace period on business invoices. Residential mobile-home lot rent only: late fees are capped at $5 a day and a 5-day grace period applies before a fee can be charged (Ariz. Rev. Stat. §§ 33-1414(C), 33-1368, 33-1414(A)).

Arkansas

Arkansas has no statute setting a maximum flat late fee on business invoices and no mandated grace period. Interest charged under a commercial agreement is a separate matter: the contractual rate is capped at 17% a year (Ark. Code § 4-57-104), so an interest-based late charge needs to stay under that ceiling.

California

California has no statutory cap on B2B late fees and no mandated grace period. Under Civil Code § 1671 and case law (Orozco v. Casimiro, 121 Cal.App.4th Supp. 7 (2004); Harbor Island Holdings LLC v. Kim, 107 Cal.App.4th 790 (2003)), a late fee must be a reasonable estimate of the cost caused by late payment, not a penalty.

Colorado

Colorado has no statute capping late fees or setting a grace period on B2B invoices. Residential rent only: the $50-or-5% cap and 7-day grace period in Colo. Rev. Stat. § 38-12-105 apply to residential rent and mobile home lot fees, not to business invoices.

Connecticut

Connecticut has no statutory cap or grace period for B2B late fees. Connecticut courts require the fee to be reasonable and not punitive (Food Studio v. Fabiola's, 1998 WL 32193; Begin v. Reissman, 1995 WL 348043). Residential rent only: the 9-day and 4-day grace periods in Conn. Gen. Stat. § 47a-15a apply to residential rent.

Delaware

Delaware has no statute capping late fees or setting a grace period on B2B invoices. Residential rent only: the 5% cap and 5-day or 8-day grace period in Del. Code tit. 25 § 5501 apply to residential rent.

District of Columbia

The District of Columbia has no statute setting a maximum late fee or grace period on business invoices. Residential rent only: late fees are capped at 5% of the amount due, with a 5-day grace period before a fee can be added (D.C. Law 21-172).

Florida

Florida has no statute capping late fees or requiring a grace period on B2B commercial invoices. Courts may still refuse to enforce a fee found unconscionable under general contract law, so the fee needs to be a reasonable one.

Georgia

Georgia caps interest on unpaid commercial accounts at 1.5% per month (18% a year) on amounts overdue 30 or more days (O.C.G.A. § 7-4-16). No written agreement is needed to charge this statutory rate, which makes Georgia the one state with a specific B2B late-interest rule.

Hawaii

Hawaii has no statute capping late fees on B2B invoices and no mandated grace period. Residential rent only: the 8% cap in Haw. Rev. Stat. § 521-21 applies to residential rent.

Idaho

Idaho has no statute capping late fees on B2B invoices and no mandated grace period. Idaho Code § 28-42-301 (5% of the unpaid instalment or $12.50, after 10 days) covers regulated consumer credit only, not business invoices.

Illinois

Illinois has no statutory maximum late fee on business invoices and no mandated grace period. Illinois courts apply a reasonableness test to contract late charges; Collins v. Hurst, 736 N.E.2d 600 (2000), a commercial lease case, is the usual citation.

Indiana

Indiana has no statute setting a maximum late fee or grace period on business invoices. Consumer rental-purchase agreements only: late fees are capped at $8 a month, $3 a week or $5 every two weeks (Ind. Code § 24-7-5-5).

Iowa

Iowa has no statute setting a maximum late fee or grace period on business invoices. Residential rent only: Iowa Code § 562A.9 sets daily and monthly caps on rent late fees, and the fee must be in the rental agreement.

Kansas

Kansas has no statute setting a maximum late fee for B2B invoices and no mandated grace period. Kansas courts apply a general unconscionability and reasonableness standard to late-fee terms.

Kentucky

Kentucky has no statute capping late fees or setting a grace period on private business invoices. Under Kentucky's Prompt Payment Act, a state agency must pay an approved vendor invoice within 30 working days (KRS § 45.453); if it pays late, a 1% interest penalty applies (KRS § 45.454). This covers invoices to Kentucky state government only.

Louisiana

Louisiana has no statute capping late fees on B2B invoices and no mandated grace period. A late fee is enforceable only if the customer agreed to it, so state it on the invoice or in a written agreement.

Maine

Maine has no statute capping late fees on B2B invoices and no mandated grace period. Residential rent only: Me. Rev. Stat. tit. 14 § 6028 allows a one-time penalty of up to 4% of one month's rent after 15 days. It is not 4% per month and it does not cover business invoices.

Maryland

Maryland has no statutory cap on late fees for commercial invoices and no mandatory grace period. Residential lease only: the 5% figure sometimes cited (Md. Code, Real Prop. § 8-208) is a residential-lease rule.

Massachusetts

Massachusetts has no statutory cap or mandatory grace period for late fees on B2B invoices. Residential rent only: the 30-day grace period in Mass. Gen. Laws ch. 186 § 15B is a residential rent rule.

Michigan

Michigan sets no maximum late fee on business invoices and no mandated grace period. Mich. Comp. Laws § 438.31 sets a default legal interest rate of 5% per year on unpaid debts where there is no written agreement, and up to 7% where a rate is agreed in writing.

Minnesota

Minnesota has no statutory cap on late fees for B2B invoices and no mandated grace period. Residential rent only: the 8% figure in Minn. Stat. § 504B.177 is a one-time 8% cap on an overdue rent payment, not 8% per month.

Mississippi

Mississippi sets no maximum late fee on business invoices and no mandated grace period. Miss. Code § 75-17-1 sets a default legal interest rate of 8% per year on accounts and contracts where there is no written agreement.

Missouri

Missouri sets no maximum late fee on business invoices and no mandated grace period. Mo. Rev. Stat. § 408.020 allows 9% per year as the default legal interest rate on unpaid accounts and contracts where no rate is agreed.

Montana

Montana sets no maximum late fee on business invoices and no mandated grace period. Mont. Code Ann. § 31-1-106 sets a default legal interest rate of 10% per year on unpaid accounts where there is no written agreement.

Nebraska

Nebraska has no statutory cap on late fees or mandatory grace period for B2B invoices. Neb. Rev. Stat. § 76-1412, often cited here, is a residential unconscionability provision and sets no late-fee rule for business invoices.

Nevada

Nevada has no statutory cap or mandatory grace period for late fees on B2B invoices. Residential tenancy only: the 5% cap and 3-day grace period in NRS 118A.210 are residential-tenancy rules.

New Hampshire

New Hampshire sets no maximum late fee on business invoices and no mandated grace period. RSA 336:1 sets a default legal interest rate of 10% per year on business transactions where there is no written agreement.

New Jersey

New Jersey has no statutory cap on B2B late fees and no mandated grace period. New Jersey courts apply a reasonableness standard to contract late charges (Metlife Capital Fin. Corp. v. Washington Ave. Assocs., 159 N.J. 484 (1999)).

New Mexico

New Mexico has no statute setting a maximum late fee or grace period for B2B invoices. Residential rent only: N.M. Stat. § 47-8-15 caps residential rent late fees at 5% per rental period and does not apply to business debts.

New York

New York has no statutory late-fee cap for B2B invoices and no mandated grace period. Residential lease only: RPL § 238-a caps residential rent late fees at the lesser of $50 or 5% of monthly rent after 5 days.

North Carolina

North Carolina has no statutory late-fee cap for B2B invoices and no mandated grace period. Residential rental only: N.C. Gen. Stat. § 42-46 ($15 or 5% of monthly rent, whichever is greater, after 5 days) applies to residential rental agreements.

North Dakota

North Dakota has no statute setting a maximum late fee or grace period for B2B invoices. State the fee, its amount and when it applies in your terms, because a court can refuse to enforce a term it finds unconscionable.

Ohio

Ohio has no statute capping late fees on business invoices and no mandated grace period. Ohio case law requires a late fee to be reasonable and proportionate to the loss from late payment. Where a contract states no rate, the statutory interest rate under Ohio Rev. Code §§ 1343.01 and 1343.03 applies.

Oklahoma

Oklahoma has no statute setting a maximum late fee or minimum grace period on overdue business invoices. The limit is what your contract states and what a court would find reasonable.

Oregon

Oregon has no statute setting a maximum late fee or minimum grace period on business invoices. The limit is what your contract states and what a court would find reasonable.

Pennsylvania

Pennsylvania has no statute capping late fees on business invoices and no mandated grace period. 41 P.S. § 202 sets a default legal interest rate of 6% per year where the contract states no rate.

Rhode Island

Rhode Island has no late-fee statute specific to commercial invoices and no mandated grace period. Its general usury law (R.I. Gen. Laws § 6-26-2) caps interest at 21% a year, with an exemption for large commercial loans, so an interest-based late charge should stay under that rate.

South Carolina

South Carolina has no statutory late-fee cap for B2B invoices and no mandated grace period. Courts apply general contract unconscionability and penalty principles, so the fee has to be a reasonable one. (S.C. Code § 27-40-230, often cited, is a residential rule.)

South Dakota

South Dakota caps the interest rate stated on a bill, statement or invoice at 18% per year (S.D. Codified Laws § 54-3-4). No fixed grace period is set by statute.

Tennessee

Tennessee has no general statute capping late fees on commercial invoices and no mandated grace period. Residential rent only: the often-quoted 10% figure comes from the Uniform Residential Landlord and Tenant Act (Tenn. Code § 66-28-201(d)), which covers rent in larger counties.

Texas

Texas has no statutory cap on commercial late fees and no mandated grace period; charges must be reasonable. Residential tenancies only: the 10% to 12% figures come from Tex. Prop. Code § 92.019 and do not apply to B2B invoices.

Utah

Utah has no statutory cap on late fees for commercial invoices and no mandated grace period; terms are set by contract. Residential only: the 10% or $75 rule is from the Fit Premises Act (Utah Code § 57-22-4).

Vermont

Vermont sets a default legal interest rate of 12% per year (9 V.S.A. § 41a) that applies when a contract does not specify its own rate. No statutory cap or grace period applies to late fees agreed by contract.

Virginia

Virginia sets a default legal interest rate of 6% per year (Va. Code § 6.2-301) that applies only when a contract does not specify its own rate. There is no statutory cap on a contractually agreed late fee and no mandated grace period.

Washington

Washington's usury statute caps interest at the higher of 12% per year or 4 points above the equivalent coupon issue yield for transactions not otherwise exempt (RCW 19.52.020). No statutory grace period applies.

West Virginia

West Virginia has no statute setting a maximum late fee or grace period on private business invoices. The limit is what your contract states and what a court would find reasonable.

Wisconsin

Wisconsin sets a default legal interest rate of 5% per year (Wis. Stat. § 138.04) that applies only when no other rate is agreed in writing. There is no statutory cap on a contractually agreed commercial late fee and no mandated grace period.

Wyoming

Wyoming has no statutory cap on a contractually agreed commercial late fee and no mandated grace period. Wyoming sets a default legal interest rate by statute for debts where the contract is silent; check the current section at wyoleg.gov before relying on a figure.

Do any states require a grace period before a late fee?

No state statute requires a grace period before a late fee on a B2B invoice. The 5-day, 7-day, 15-day and 30-day periods quoted for New York, Colorado, Maine and Massachusetts are residential rent rules and do not cover business invoices. A grace period is the number of days after the due date during which no fee applies, and it is set by you, in your terms. 5 to 7 days is the usual choice: long enough to absorb a payment run, short enough to keep the fee as leverage. In Paidnice the grace period is a setting on the late fee policy, so the fee or reminder fires only once that number of days has passed.

Are late payment fees illegal?

No. Late fees on business invoices are legal in every US state when they are written into the contract or terms in advance. A late fee becomes unenforceable only when it is excessive, undisclosed, or structured as a penalty rather than a reasonable pre-estimate of the cost of late payment. California states this test in Civil Code § 1671, and courts in Connecticut, Illinois, New Jersey and Ohio apply the same reasonableness standard. A fee of 1% to 2% a month, or a fixed admin charge, disclosed on the invoice and in your terms, sits comfortably inside it. For the rate to set, see how much you can charge for a late fee.

Can you charge late fees on late fees?

No. A late fee is charged once, on the overdue invoice principal. Charging a fresh late fee on an earlier late fee is not standard practice and is unlikely to be enforceable without a specific contract clause, because the second fee no longer estimates any loss from late payment. Interest is different: interest can compound on the overdue balance if your terms say so, and that is a rate decision rather than a stacked fee. Paidnice keeps the two apart: an invoice late fee is a fixed or percentage charge raised once per overdue invoice, and statement interest accrues on the overdue balance, with compounding on by default and a toggle to switch it off.

Frequently asked questions about state late fee laws

Do I need a written contract to charge late fees?

Yes. In every state a late fee is a contract term, so it has to be disclosed in your written agreement, terms of service or invoice terms before the invoice is raised. Without written terms a court will not enforce the fee, even in a state with no cap. Georgia's statutory 1.5% a month (O.C.G.A. § 7-4-16) is the one rate that applies without a written agreement.

What counts as a reasonable late fee if my state has no cap?

A reasonable late fee is one that estimates what late payment costs you: your financing cost plus the admin of chasing. Courts weigh industry practice, your actual cost, and whether the fee punishes rather than compensates. A rate of 1% to 2% a month (12% to 24% a year) with a fixed admin charge is the range most US businesses use.

Can I charge compound interest on late payments?

Yes, if your terms say the interest compounds. No state in the verified table bans compounding on a commercial invoice, but the statutes that cap the interest rate (Arkansas 17%, South Dakota 18%, Rhode Island 21%, Washington 12% or the coupon-yield figure) measure the effective rate, so compound interest has to stay under the cap. Paidnice's statement interest compounds by default; turn the "Include previous interest charges" toggle off for simple interest.

What if I invoice customers in several states?

Set one fee that is reasonable in every state, or set terms per customer location. Because no state caps a B2B late fee below Georgia's 1.5% a month, a policy of 1.5% a month plus an admin charge works nationally without a state-by-state schedule. If you do want different rates, Paidnice runs several late fee policies at once, one per customer group, so a Georgia group can carry the statutory rate while other groups carry your contract rate. How to group them is in running different late fee policies for different customers.

What if my state has no maximum late fee?

Charge the fee in your terms and keep it tied to your cost. In the 34 states without a cap or a default rate, the only test is reasonableness, so a fee that offsets your financing cost and admin time is enforceable, and a fee designed to punish is not. Write the fee, the grace period and the date it applies into the terms the customer accepts.

Automatically issue late fees with Paidnice

Late fees are leverage: a fee that is on the ledger enters the customer's payables and their payment run, so the overdue invoice stops being optional. Applying them by hand is the problem. Xero and QuickBooks Online do not apply late fees automatically, so a human has to add the fee to each invoice or raise a new one. The Xero product idea "Add interest to late invoices" was posted on 29 March 2012, holds 1,114 votes with the status Accepted, and Xero's latest response, on 7 July 2025, states there are no committed plans.

Paidnice issues late fees automatically when invoices go overdue, on the ledger in Xero or QuickBooks, as a fixed charge, a percentage or statement interest. Customers cut their average wait for payment in half within 30 days. This is how it works:

Step 1. Work out your late fee

Work out what late payment costs your business in financing and admin, then set a fee that covers it. Check the state list above for the statutory rate or cap that applies, if any, and use late fee policy wording examples for the clause.

Step 2. Sign up and automate the fee

Sign-up is free with no card. Connect Xero or QuickBooks, create a late fee policy with the fee amount and grace period, and choose whether it applies to invoices already overdue or only to new ones. Put the same policy in your terms and conditions so the fee is enforceable.

Step 3. Let the policy run

Paidnice applies the fee on the day the grace period ends, to the customer groups you choose, and reports fees charged against fees collected.

The information in this article is general and does not constitute legal advice. For your industry or a specific dispute, speak to a lawyer in your state.

Written by

Denym Bird

Co-founder & CEO of Paidnice

Denym is a software entrepreneur and writes about accounts receivables management for small business.

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