Contract Glossary
Late Payment Clause
Definition
A contract provision that defines the consequences of not paying on time. It typically specifies a grace period, a late fee (flat or percentage-based), and interest that accrues on overdue amounts. The clause creates a financial incentive to pay on schedule and gives the payee clear remedies without needing to go to court.
In Practice
Your freelance contract says payment is due within 30 days. Day 31 passes with no payment. Your late payment clause kicks in: a $50 flat fee plus 1.5% monthly interest on the unpaid balance. On a $5,000 invoice, that's $50 + $75 for the first month. By month three, the client owes $5,275. Without the clause, you'd have no clear remedy until you filed a lawsuit, and even then, the court might not award interest or fees.
Example Clause
Any amount not paid when due shall bear interest at the rate of 1.5% per month (18% per annum), or the maximum rate permitted by applicable law, whichever is less. In addition, Client shall pay a late fee of $50 or 5% of the overdue amount, whichever is greater, for each payment not received within ten (10) days of the due date.
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