How to deal with late payments in the US

Late payment is the biggest cash flow killer for US freelancers and small businesses. According to a QuickBooks survey, 64% of small businesses have invoices that are at least 60 days past due. The average small business is owed over $84,000 in unpaid invoices.

You don't have to accept it. While the US doesn't have a blanket statutory interest law like the UK's Late Payment Act, you have solid options for protecting yourself and recovering what you're owed.

Your rights when clients pay late

Unlike the UK, the US has no federal law that automatically entitles you to charge interest on late commercial payments. Your right to charge late fees comes from your contract — which is why it's critical to include late payment terms in every agreement.

What you can include in your contract

• Late fee percentage — typically 1–1.5% per month on the outstanding balance
• Flat late fee — a fixed amount (e.g., $25–$50) applied when payment is overdue
• Interest rate — annual percentage rate on overdue amounts (check your state's usury laws for the maximum)
• Collections costs — the right to recover costs of pursuing the debt

Important: Some states cap the interest rate you can charge. For example, California limits it to 10% per year for most commercial contracts. Check your state's usury laws before setting rates.

State-level protections

Several states have prompt payment laws for certain types of work:

• Construction — nearly every state has prompt payment statutes for construction work, typically requiring payment within 30 days of invoice
• Government contracts — the federal Prompt Payment Act requires government agencies to pay within 30 days and mandates interest on late payments
• Freight and transportation — federal law requires payment within 15 days for regulated carriers

For general freelance work, your contract is your primary protection.

Before things go wrong: prevention

The best way to deal with late payments is to prevent them.

Include late payment terms in your contract. Before starting work, send a simple engagement letter or contract that includes:

• Your payment terms (Net 15, Net 30, etc.)
• Your late fee policy (e.g., "1.5% per month on overdue balances")
• When work will stop if payment isn't received

Invoice immediately. Send the invoice the day you deliver. Every day you delay is a day added to your payment timeline. Coinvoice lets you send invoices in under 60 seconds with a payment link included.

Include a payment link. Make it as easy as possible for your client to pay. One-click card or PayPal payment converts far better than "please wire to routing number XXXXXXXXX." Our invoice generator includes payment details on every invoice.

Use shorter payment terms. Net 30 is standard, but Net 15 gets you paid faster. For new clients or small projects, there's nothing wrong with asking for payment on receipt.

Request deposits for large projects. For projects over $2,500, ask for 25–50% upfront. This proves the client has budget and reduces your risk.

When an invoice goes overdue: step-by-step

Day 1: Friendly reminder

Send a brief, polite email or message. Assume it's an oversight.

Coinvoice sends automatic reminders when invoices go overdue, so you don't have to remember to do this manually.

Day 7: Follow-up with the invoice attached

If you haven't heard back, send a second reminder with the invoice attached. Be direct but professional.

Day 14: Phone call

Email is easy to ignore. Pick up the phone. A direct conversation often resolves things faster — sometimes invoices genuinely get lost in someone's inbox. Be calm, professional, and direct. Ask for a specific payment date.

Day 30: Formal demand letter

If the invoice is now 30 days overdue with no resolution, send a formal demand letter (email is fine, but consider certified mail for larger amounts) stating:

• The original invoice amount and due date
• That the payment is overdue by [X] days
• Any applicable late fees per your contract
• A final payment deadline (usually 10 business days)
• That you will escalate to formal recovery if not paid by the deadline

This letter alone often gets results. Most businesses take a formal demand seriously.

Day 45+: Escalation options

If the demand letter doesn't work, you have several options:

Small claims court. For amounts up to $5,000–$25,000 (varies by state), small claims court is fast and inexpensive. Filing fees are typically $30–$100. You don't need a lawyer. If you win and the client doesn't pay, you can pursue wage garnishment or bank levies.

Mediation or arbitration. Many contracts include an arbitration clause. Even without one, mediation is cheaper and faster than court. Some local bar associations offer free or low-cost mediation services.

Collections agency. An agency will chase the debt for you, typically for 25–50% of the amount recovered. Only use reputable agencies. Reporting the debt to credit bureaus can be effective leverage.

Attorney demand letter. A letter on law firm letterhead often gets immediate attention. Many attorneys will send a demand letter for a flat fee of $200–$500.

Write it off. Sometimes a debt isn't worth pursuing. If the amount is small and the client is unreachable, write it off and deduct it as a bad debt on your Schedule C. Use it as a learning experience for vetting future clients.

Protecting yourself long-term

• Include late payment terms in every contract — don't rely on goodwill
• Request deposits or milestone payments for large projects
• Track all invoices and payments in one place so overdue amounts are immediately visible
• Build a cash reserve so one late payment doesn't put your business at risk
• Check references before taking on large projects with new clients
• Consider requiring payment before delivery for first-time clients
• Get everything in writing — email confirmations count

Late payments are frustrating, but they're not inevitable. Clear contracts, prompt invoicing, easy payment methods, and consistent follow-up solve most cases before they become problems.

New to freelancing in the US? Our complete US freelance invoicing guide covers everything from choosing a business structure to sending your first invoice and getting paid.

Ready to send invoices with built-in payment links and automatic reminders? Get started with Coinvoice — free for up to 5 active clients.