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Late Payment Policy Template
A complete, customizable late payment policy you can attach to contracts or send alongside your first invoice. Covers everything from payment terms and grace periods to escalation timelines and payment plan options.
Values in [brackets] are customizable — replace them with your own terms before use.
1. Payment Terms
Start with clear, unambiguous payment expectations. These terms should also appear in your contract or statement of work.
1.1 Payment Due Date. All invoices are due Net [30] from the invoice date unless otherwise agreed in writing.
1.2 Accepted Payment Methods. Payment may be made via [bank transfer, credit card, PayPal, etc.]. Payment instructions are included on each invoice.
1.3 Invoice Delivery. Invoices will be sent via email to the designated accounts payable contact. It is the Client's responsibility to provide and maintain a current billing email address.
1.4 Receipt Confirmation. Client agrees to confirm receipt of each invoice within [2] business days. Failure to confirm receipt does not extend the payment due date.
2. Grace Period
A grace period signals professionalism and good faith. It gives clients a reasonable buffer without consequences, which makes enforcing later stages easier.
2.1 Grace Period Duration. A grace period of [5] business days applies following the invoice due date.
2.2 Grace Period Communication. During the grace period, a friendly payment reminder will be sent to the Client's designated billing contact.
2.3 No Fees During Grace Period. No late fees, interest, or administrative charges will accrue during the grace period. Payment received within the grace period is considered on-time.
3. Late Fee Schedule
Be specific about fee calculations so there is no ambiguity. Always check your local and state laws for maximum allowable interest rates before finalizing these terms.
3.1 Interest on Overdue Balances. After the grace period expires, a late fee of [1.5%] per month (equivalent to [18%] APR) will be applied to the outstanding balance.
3.2 Compounding. Late fees compound monthly on the total unpaid balance, including any previously accrued late fees.
3.3 Administrative Fee. An administrative fee of $[25] will be applied to each invoice that remains unpaid past the grace period. This fee covers the cost of additional administrative effort required to collect payment.
3.4 Maximum Interest. Total late fees and interest shall not exceed the maximum rate permitted by applicable federal, state, or local law. In the event that any fee exceeds the legal maximum, the fee will be reduced to the highest amount allowed by law.
Note: Maximum allowable interest rates vary by jurisdiction. In the U.S., some states cap late fees at 1-1.5% per month. Check your state's usury laws before setting your rate.
4. Escalation Timeline
A clear escalation timeline removes emotion from the collections process. Each step is documented and predictable, which protects both you and your client.
4.1 The following escalation procedure applies to all invoices that remain unpaid past the due date:
Due Date: Automated payment reminder sent via email.
Grace Period: Friendly follow-up email. No fees applied.
Formal Notice: Late payment notice sent with fee calculation and updated amount owed.
Second Notice: Phone call to Client's designated contact, followed by a second formal written notice.
Work Suspension: Final notice issued. Work on current and future projects may be paused until the outstanding balance is resolved.
Demand Letter: Formal demand letter sent, which may be prepared by legal counsel.
Collections: Account referred to a collections agency or pursued through small claims court, at the discretion of [Business Name].
Write-Off: Write-off consideration after all reasonable collection efforts have been exhausted.
5. Payment Plan Option
Offering a payment plan option shows flexibility and can actually improve your collection rate. Clients who might otherwise ghost you are more likely to engage when there is a structured alternative.
5.1 Eligibility. Clients experiencing financial difficulty may request a payment plan for any outstanding invoice.
5.2 Request Deadline. Payment plan requests must be submitted in writing within [10] days of the original invoice due date.
5.3 Approval. Payment plans are approved at the sole discretion of [Business Name]. Approval of a payment plan does not set a precedent for future invoices.
5.4 Payment Plan Terms. An approved payment plan agreement will specify:
- Total outstanding amount
- Number and amount of installments
- Due date for each installment
- Consequences of missed installments (including reversion to standard escalation procedures)
5.5 Continued Accrual. Late fees continue to accrue on the unpaid balance during a payment plan unless explicitly waived in the payment plan agreement.
6. How to Communicate This Policy
Having a policy is only useful if your clients know about it. The goal is to make clients aware of the terms upfront so that enforcement is never a surprise. Here is how to introduce it naturally at each stage of a client relationship:
In Your Contract
Include a summary of your payment terms and late fee schedule directly in your contract or statement of work. Reference the full policy as an attachment or addendum.
On Every Invoice
Add a one-line reference on each invoice. For example:
"Payment terms: Net 30. See attached Late Payment Policy for details."
With the First Invoice
Send the full policy document alongside your first invoice to every new client. This establishes expectations from the start and gives you documentation that the client was informed.
During Onboarding
Mention it verbally during your onboarding or kickoff call. Frame it as standard business practice, not a threat. Keep the tone professional and matter-of-fact.
Sample Language
"I've attached my standard payment policy for your records. Most of my clients pay within terms, but I like to be upfront about the process so there are no surprises."
Automate Your Payment Follow-Ups
A late payment policy sets the rules. Payment Hunter enforces them automatically. Upload invoices, set your reminder schedule, and let the system handle follow-ups so you can focus on your work.
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