Whether a late payment charge or a bounced-check charge can be added depends on the law that governs the debt. Kansas, for example, caps the service charge on a dishonored check at $30, according to Kansas Office of Revisor of Statutes. The other texts covered here set different conditions, so a charge that one law allows may not be allowed under another.
Key takeaways: late and bounced payment charges
- the Kansas service charge on a dishonored check, according to Kansas Office of Revisor of Statutes, "shall not exceed $30" and applies when the drawee refuses payment for insufficient funds or no deposits.
- the UK fixed sum of £100 applies, according to legislation.gov.uk, to a debt of ten thousand pounds or more once statutory interest begins to run on a qualifying debt.
- federal due dates, according to Acquisition.gov, fall on the thirtieth day after the designated billing office receives a proper invoice.
- California finance charges may be excluded from sales tax, according to California Department of Tax and Fee Administration, when the retailer keeps records that show the sales price and those charges separately.
- before adding any charge, write down the governing law, the published cap or fixed sum, and the date and method of your written demand.
Late payment charges: the short answer on what can be added
The governing law sets what can be added, and the figures differ from one text to the next. Kansas limits one kind of charge, the service charge on a check that bounces for insufficient funds. The UK sets a fixed sum that starts once statutory interest begins to run. Federal contract rules set day counts for due dates and interest penalty timing. California's sales tax rule addresses finance charges that appear in a credit sale contract. Each figure below is tied to the publisher named beside it, so a figure from one text does not carry over to another.
None of these is a general late fee for every unpaid invoice, so the terms of your agreement with the client and the governing law come first.
Read the invoice terms before you add a late charge. If the terms are silent, none of the rules below supports the charge. For a related guide, see our article on late payment interest calculation.
Kansas dishonored check: service charge, damages and demand
The Kansas rule covers a check that the bank refuses for lack of funds. According to Kansas Office of Revisor of Statutes, the service charge applies to a check dishonored "because the maker or drawer had no deposits in or credits with the drawee or has not sufficient funds in, or credits with, the drawee," and the charge "shall not exceed $30." The rule applies only to checks dishonored for those reasons.
The same text governs what a check writer may tender to settle. According to the same publisher, "For purposes of this subsection only, the amount tendered as satisfaction of the claim shall not include triple damages or damages of $100 as provided in subsections (a)(1) and (2)." A reader working through a Kansas dispute should therefore keep the damages figure separate from the amount that can be tendered.
The written demand has its own requirements. According to Kansas Office of Revisor of Statutes, the notice "shall state the exact amount and date due," along with an estimate of the amount that may be incurred if the demanded amount is not paid by the specified date. The demand "shall be sent by first class mail" to the address on the check or to the last known address of the maker or drawer.
The petition is also part of the process. According to Kansas Office of Revisor of Statutes, the plaintiff must include in the petition a statement alleging that the defendant may tender that amount as satisfaction of the claim, as the statute provides.
Court awards follow separate rules. The court may waive all or part of the attorney fees, and if it does, it must make written findings of fact about why the amounts awarded are sufficient to compensate the holder of the check. The cited text also states that "21-5821, and amendments thereto, shall not be a prerequisite or bar to recovery pursuant to this section."
Written demands should be kept with the amount, the due date and the mailing date recorded.
Illustrative example: a returned Kansas check
Suppose a client's check for $100 is returned for insufficient funds. The Kansas cap applies to the service charge on that dishonored check, so $30 is the most the rule allows for that charge, and a charge above $30 would exceed it. Before you add anything, check the invoice terms, write down the $30 cap, and record the date and method of your written demand. This example uses round numbers for illustration only.
UK fixed sum once statutory interest starts to run
The UK rule begins when statutory interest starts. According to legislation.gov.uk, "Once statutory interest begins to run in relation to a qualifying debt, the supplier shall be entitled to a fixed sum (in addition to the statutory interest on the debt)." The fixed sum is a separate amount on top of interest, not a replacement for it. A supplier therefore has two components to track: the statutory interest and the fixed sum.
The amount depends on the size of the debt. According to legislation.gov.uk, a debt of ten thousand pounds or more carries a fixed sum of £100. For a smaller debt, check section 5A for any other bands before you add the sum.
Check the Act's meaning of "qualifying debt" before adding the sum. The same page carries a status note: "There are currently no known outstanding effects for the Late Payment of Commercial Debts (Interest) Act 1998, Section 5A." That note appears alongside the text quoted above, and it concerns the section's effects rather than the amount of the sum.
Record the debt amount and the date that statutory interest began to run. The date triggers the fixed sum, and the debt size determines its amount.
Federal contracts: when the interest penalty clock starts
Federal contract timing involves two different dates. According to Acquisition.gov, the due date is the thirtieth day after the designated billing office receives "a proper invoice from the contractor."
The second date is a deemed acceptance. "For the sole purpose of computing an interest penalty that might be due the contractor," according to Acquisition.gov, "Government acceptance is deemed to occur constructively" on the seventh day after the contractor completes the work or services under the contract terms. The quoted phrase "sole purpose" ties this date to the interest penalty computation.
A related rule covers approval rather than acceptance. According to Acquisition.gov, government approval is deemed to occur constructively on the seventh day after the designated billing office receives the contractor estimates. That approval date runs from when the estimates reach the billing office, not from completion of the work, so it is a separate clock.
Both dates carry a condition. According to Acquisition.gov, the constructive acceptance and constructive approval requirements depend on a proper payment request and on no disagreement over quantity, quality, contractor compliance with contract requirements, or the requested progress payment amount. Read the dates together with that condition.
For any federal invoice, record the date the work was completed, the date the billing office received the invoice, and a copy of the payment request.
California sales tax on finance charges you itemize
California's rule is a sales tax rule for tangible personal property sold on credit, not a late payment fee rule. According to California Department of Tax and Fee Administration, "the whole amount of the contract is taxable" unless the retailer keeps "adequate and complete records to show separately" the sales price of the property and "the insurance, interest, finance, and carrying charges made in the contract."
The separate records matter for the tax calculation. According to California Department of Tax and Fee Administration, if such records are kept by the retailer, the insurance, interest, finance and carrying charges "may be excluded from the computation of the tax." The records therefore need two kinds of separate entries: the sales price of the property and each of the listed charges.
The rule covers charges made in the contract, so it does not extend to charges added after a late payment. A bookkeeper who itemizes finance charges on a California credit sale should keep the separate records that the text describes, with the property price and each charge on its own line.
For a related guide, see our article on sales tax on invoices.
Late payment charges reference table and what moves the number
The table gives one row for each publisher, and each cell comes from that publisher's quoted text.
| Publisher and short title | Figure or rule | Condition in the quoted text |
|---|---|---|
| Kansas Office of Revisor of Statutes, section 60-2610 | "shall not exceed $30" | check dishonored because the drawee has "not sufficient funds in, or credits with, the drawee" |
| legislation.gov.uk, Late Payment of Commercial Debts (Interest) Act 1998, Section 5A | "the sum of £100" | a debt of ten thousand pounds or more, once "statutory interest begins to run in relation to a qualifying debt" |
| Acquisition.gov, determining payment due dates | thirtieth day after the billing office receives the invoice; seventh day for the interest penalty | "a proper invoice from the contractor" and a "proper payment request" with "no disagreement" |
| California Department of Tax and Fee Administration, Regulation 1641 | charges "may be excluded from the computation of the tax" | retailer keeps "adequate and complete records to show separately" the charges |
Several factors change which rule applies.
- governing law: the Kansas limit, the UK band and the federal dates come from different texts.
- reason for the return: the Kansas $30 limit is tied to insufficient funds or no deposits.
- debt size: the UK £100 band starts at ten thousand pounds.
- timing: the federal dates run from when the billing office receives the invoice, from work completion, and from when it receives contractor estimates for approval.
- records: the California exclusion depends on records the retailer keeps.
Next step
Open your oldest unpaid invoice or returned check today. Note which law governs the debt, compare any charge you plan to add against the published cap or fixed sum, and record the date and method of your written demand.
Related guides: Invoice payment schedules: 4 tools for due date setup · Recurring invoice dates: 14 rules in 4 tools.
FAQ: late payment and bounced check charges
What late payment charges can a business add to an unpaid invoice?
The answer depends on the law that governs the debt, because no single rule sets a general late fee. Check your agreement before you add any charge.
How much is the Kansas service charge on a bounced check?
The Kansas service charge on a check dishonored for insufficient funds or no deposits is capped at $30, according to Kansas Office of Revisor of Statutes. It is a Kansas figure, not a nationwide one.
Does the UK fixed sum apply to my overdue invoice?
Only once statutory interest begins to run on a qualifying debt, according to legislation.gov.uk. The sum is £100 for a debt of ten thousand pounds or more, so check the Act's meaning of qualifying debt before you add it.
When does the federal interest penalty clock start on a contract invoice?
For the interest penalty, government acceptance is deemed to occur constructively on the seventh day after the contractor completes the work, according to Acquisition.gov. The due date itself is the thirtieth day after the billing office receives a proper invoice, and the constructive dates depend on a proper payment request and no disagreement.
Is a finance charge on a credit sale taxed in California?
By default, yes: under California Department of Tax and Fee Administration, the whole amount of a credit sale of tangible personal property is taxable unless the retailer keeps adequate and complete records showing separately the sales price of the property and the finance charges made in the contract. If those records are kept, the finance charges may be excluded from the computation of the tax. This rule concerns charges made in the contract, not late payment fees.