What Does “Late Fee” Mean in a Contract?
A penalty charged when payment is not received by the due date, typically expressed as a percentage or flat amount.
Detailed Explanation
Late fees encourage timely payment by imposing costs for delays. They can be flat amounts, percentages of the overdue amount, or interest charges. Many jurisdictions limit the maximum late fee that can be charged.
Late fees must be distinguished from interest. Some states treat excessive late fees as unenforceable penalties while allowing reasonable interest charges.
Example in a Contract
“Any payment not received within 30 days of the due date shall be subject to a late fee of 1.5% per month (18% annually) on the overdue balance, or the maximum rate permitted by law, whichever is less.”
Why It Matters
Late fees affect your cash flow and can add up quickly. Review the rate, when it kicks in, and whether there's a grace period. Also check if late fees compound.
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