Late payment rules by state

There is no single US rule on charging for late payment. What applies to you depends on your state, on whether your customer is a consumer or a business, and on whether the work falls under a prompt payment statute — and those three questions have different answers in different places.

The three bodies of rule to check

  1. Your state's limits on finance charges to consumers

    Several states cap what may be charged to a consumer for late payment, and some require specific disclosure before it can be charged at all. These rules generally do not apply between businesses.

  2. Prompt payment statutes

    Most states have prompt payment acts covering public construction work, and many extend them to private construction. They set the timetable for paying contractors and subcontractors and often fix the interest for missing it — replacing whatever the contract said.

  3. Your own contract

    Between businesses, and outside those statutes, the fee is whatever the parties agreed. Which is why the agreement is the thing that decides most cases.

What this means in practice

  • Selling to consumers: check your state's cap and disclosure rules before setting a rate
  • Selling to businesses: your stated terms govern, so state them in advance and on every invoice
  • Construction, public or private: look up your state's prompt payment act, because it may set the timetable and the interest regardless of your contract
  • Working across state lines: the applicable law is usually named in the contract, and if it is not, that is worth fixing

Where to look it up

Start with your state's own attorney general or department of revenue for the consumer rules, and your state's prompt payment act for construction work. For general small business guidance the SBA is a reasonable starting point — but for a specific rate on a specific contract, ask a lawyer in your state.

Put your terms on an invoice

Common questions

Is there a federal late payment law for small businesses?
Not for private contracts. The federal Prompt Payment Act governs how federal agencies pay their own contractors; it does not set terms between private businesses.
Can I charge whatever late fee I like to a business?
Broadly, whatever you agreed — but a fee that is punitive rather than compensatory can be challenged, and prompt payment statutes may override the contract for construction work.
Does my state's cap apply to my business clients?
Usually not. Consumer finance charge caps generally protect consumers, not companies. Check your own state, because the definitions vary.

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