To chase an unpaid invoice, escalate step by step: a friendly reminder right after the due date, a firmer follow-up with a phone call, a final demand letter with a deadline, then small claims court or a collection agency. In the US, no federal law sets a late fee between private businesses: you can charge the late fee or interest your client agreed to upfront, within your state’s limits. Consistency matters most: a reminder sent on time beats a perfect one sent too late.
What payment terms are standard?
Net 30 is the default for most US businesses: the invoice is due 30 days after it’s issued. Net 60 is common when you sell to large companies, hospitals, universities or government agencies. To get paid sooner, you can offer an early payment discount, such as “5% 10 net 30”: 5% off if the client pays within 10 days, otherwise the full amount is due at 30 days.
Can you charge late fees or interest?
Only if your client agreed to them before the work started. Put the late fee in your contract and on every invoice: a fee that first appears on a past-due notice is hard to enforce. Flat fees of $25 to $50 are common, and interest is capped by state law. Nolo’s rule of thumb is that charging 10% a year or less probably keeps you within your state’s limits. The federal Prompt Payment Act, with its interest penalties, only covers federal agencies paying their vendors, not businesses paying each other.
This guide is general information, not legal advice. Rules on late fees, interest and collection vary by state: check yours, or ask an attorney before you take a client to court.
The four reminder steps
No law sets a reminder schedule. This one is a common pattern: start gently, and get firmer at each step.
| Step | When | How | Tone |
|---|---|---|---|
| 1. Reminder | The day after the due date | Friendly | |
| 2. Follow-up | 7 to 10 days later | Email, then a phone call | Firm, mentions the agreed late fee |
| 3. Final demand letter | About 30 days past due | Letter, ideally on an attorney’s letterhead | Formal, with a deadline of about two weeks |
| 4. Collection | After the deadline | Small claims court or a collection agency | Legal |
First reminder template
Subject: Invoice [number], past due
Hi [First name],
A quick reminder that invoice [number] for $[amount], due on [date], is still open. I’ve attached it here. Could you let me know when we can expect payment? If it’s already on its way, please disregard this note.
Thanks,
Follow-up template
Subject: Second reminder: invoice [number], [X] days past due
Hi [First name],
Following up on my note from [date]: invoice [number] for $[amount] is still unpaid. Please send payment within 7 days. After that, the late fee in our agreement will apply.
Small claims court or a collection agency?
Small claims court is cheap and quick, and you don’t need a lawyer, but its limit depends on your state: from $2,500 to $25,000. In California, a business can claim up to $6,250 and lawyers can’t represent either side. In Texas, Justice Court handles claims up to $20,000, attorney’s fees included.
A collection agency usually works on contingency and keeps a share of what it recovers, often 25% to 50%. Businesses tend to hand over an invoice once it’s 90 days past due. Check that the agency is licensed, bonded and insured. The federal debt collection law, the FDCPA, protects consumers: it doesn’t cover business debts.
How do you automate invoice reminders?
- Your invoicing software (QuickBooks, FreshBooks, Xero…) can send automatic reminders, usually with the same text for every client.
- A collection tool suits you if you have many invoices.
- An AI agent spots late payments, adapts the tone to each client and prepares the reminder for you to approve. That’s what Oscar, Extra’s finance agent, does: he reads your invoice export or the files you send him, tracks your Stripe payments and writes one reminder per client. Nothing goes out without your approval.
Common mistakes
- Waiting until the end of the month to chase every late invoice at once.
- Leaving your late fee out of the contract and off the invoice.
- Using the same tone for a loyal client and a chronic late payer.
- Threatening court before a friendly reminder and a phone call.
Sources
- U.S. Chamber of Commerce CO—, “What are net terms?”
- Nolo, when you can charge late fees and finance charges
- Nolo, getting clients to pay
- U.S. Treasury, Prompt Payment
- California Courts, small claims
- TexasLawHelp, suing in Justice Court
- U.S. Chamber of Commerce CO—, how collection agencies get paid
- FTC, debt collection FAQs
- Oscar, Extra’s finance agent
