Late fees on invoices in Texas are legal, but the state treats every late charge as interest, so usury limits control what you can collect. With a written agreement signed before the work or delivery, the standard safe rate is 1.5% per month, which equals 18% per year. Without a written agreement, you’re limited to 6% per year, and it doesn’t start accruing until 30 days after the payment was due.
The Rate You Can Charge
Most Texas businesses charge 1.5% per month on past-due balances. That figure is not arbitrary. It comes from Chapter 303 of the Texas Finance Code, which sets an optional rate ceiling that floats weekly based on U.S. Treasury bill auction rates but can never drop below 18% per year.1State of Texas. Texas Finance Code Chapter 303 – Optional Rate Ceilings Because 18% is the floor, 1.5% per month is always safe. The optional ceiling can reach 28% per year for business and commercial transactions, but tracking a weekly-changing number adds risk without much reward, which is why 1.5% per month has become the default.
You only get access to that ceiling if your contract specifies the rate. Without a written agreement pointing to it, the base maximum under Texas Finance Code Section 302.001 is 10% per year, and anything higher is usurious unless a specific statute allows it.2State of Texas. Texas Finance Code 302.001 – Contracting For, Charging, or Receiving Interest or Time Price Differential; Usurious Interest
If you and the customer never agreed on any rate at all, you can still collect legal interest, but only at 6% per year, and it doesn’t start on the invoice due date. It begins on the 30th day after payment was due.3State of Texas. Texas Finance Code 302.002 – Accrual of Interest When No Rate Specified On a $5,000 invoice, that comes to roughly $25 per month, compared to about $75 per month at the 18% contractual rate. The gap is the reason to get a written agreement.
Why the Label “Late Fee” Doesn’t Matter
Texas law does not treat a “late fee” as something separate from interest. Any charge assessed on a past-due balance is interest for usury purposes, whether you call it a late fee, service charge, finance charge, or something else.2State of Texas. Texas Finance Code 302.001 – Contracting For, Charging, or Receiving Interest or Time Price Differential; Usurious Interest The rate ceilings apply to the amount, not the wording on the invoice. Renaming the charge does not create room to charge more.
You Need the Agreement Before the Work
A late fee is only enforceable if the customer agreed to it before the debt existed. You cannot send an invoice, watch it go unpaid, and then add a fee the customer never consented to. The agreement has to be in place before you deliver the goods or perform the service.
It doesn’t need to be a separate document. A clause in your service contract, a rate provision in a signed proposal, or terms on a purchase order the customer signed will all do the job. What matters is that the customer had a clear chance to see the late fee terms and accepted them. A verbal understanding can technically qualify, but proving it in court is hard, and a signed writing removes the argument. Electronic agreements count: a digitally signed contract, an approval reply by email, or a checkout page where the terms were visible before the customer clicked accept can all establish a valid late fee agreement.
The Fee Also Has to Be Reasonable
Staying under the usury ceiling isn’t the only test. A Texas court can refuse to enforce a late fee that functions as a penalty rather than a reasonable estimate of the harm caused by late payment. This is the liquidated damages question, and it mostly bites flat fees.
A percentage-based monthly charge on the outstanding balance almost always survives, because it scales with the amount owed and mirrors the cost of borrowing. A flat fee is more exposed. A $500 flat late fee on a $600 invoice looks punitive, and a judge could throw it out. If you use a flat fee, keep it proportional to the invoice and be ready to explain the actual costs it covers, such as the administrative expense of chasing overdue accounts.
What to Put on the Invoice
Once the signed agreement exists, every invoice should reinforce it. The invoice is a reminder of the terms, not the source of the obligation. Three things belong on it:
- A clear due date. “Payment due by June 15, 2026.” Without a date, “late” has no meaning.
- The late fee rate stated both monthly and annually. For example: “A late charge of 1.5% per month (18% per year) applies to balances unpaid after the due date.”
- A reference back to the contract, such as “Per our agreement dated March 1, 2026.”
Mirror the language from the contract exactly. If the contract says 1.5% per month, don’t print 2% per month on the invoice. Any inconsistency gives the customer an argument that the terms shifted or were never clear.
What Overcharging Costs You
Texas punishes usury aggressively, and the numbers should discipline your rate-setting.
On a commercial transaction, a creditor who charges more than the authorized rate is liable for three times the excess interest collected. Charge $3,000 in late fees when the legal maximum was $1,000, and you owe the customer three times the $2,000 overage, or $6,000.4State of Texas. Texas Finance Code 305.001 – Liability for Usurious Interest
On a personal, family, or household transaction, the penalty is steeper. The customer can recover the greater of three times the excess interest or $2,000 (or 20% of the principal, whichever is less). Charge more than double the authorized rate and you also forfeit the entire principal along with all interest collected.4State of Texas. Texas Finance Code 305.001 – Liability for Usurious Interest
Either way, the court will award the customer reasonable attorney’s fees.5State of Texas. Texas Finance Code 305.001 – Liability for Usurious Interest – Section: 305.005 If you are unsure whether a rate is too high, lower it. The cost of undercharging is trivial next to the cost of a usury claim.
Collecting When the Customer Still Won’t Pay
When a properly documented late fee gets ignored along with the underlying invoice, collection follows a predictable path.
Start With a Demand Letter
Send a formal written demand stating the original invoice amount, the accrued late fees, the total now owed, and a specific deadline. Reference the contract that authorizes the fee. This creates a paper trail and often produces payment without a lawsuit. Keep it professional. You are collecting your own debt under your own business name, so the federal Fair Debt Collection Practices Act generally does not apply to you.6eCFR. Part 1006 Debt Collection Practices (Regulation F) If you use a name suggesting a third-party collector, those rules do apply.
File in Justice Court
If the demand goes nowhere, Texas justice courts handle civil claims up to $20,000.7Texas State Law Library. Which Small Claims Court Should I File My Lawsuit In The filing fee is $54, plus $100 per defendant for service.8Texas Office of Court Administration. Fees for Justice Courts (Effective 01/01/2026) Bring the unpaid invoice, the signed agreement authorizing the late fee, and a copy of your demand letter. The judge is looking for a clear chain: the customer agreed to the terms, received the invoice, was notified of the overdue amount, and still didn’t pay. Claims above $20,000 go to county or district court, where the process is more formal.
Don’t Miss the Four-Year Deadline
Texas gives you four years from the date a debt becomes due to sue on it.9Texas State Law Library. Debt Collection – Time-Barred Debts After that the debt is time-barred, and the expired deadline is a complete defense. If you have old invoices approaching the four-year mark, file before the window closes. Once it does, the late fees and the underlying balance both become uncollectible in court.