Everything freelancers and small businesses need to know about charging late fees, interest rates, and collecting overdue invoices in Alabama.
This information is provided for general educational purposes only and does not constitute legal advice. Laws change frequently. Consult a licensed attorney in Alabama for advice on your specific situation. Last reviewed: 2026.
Usury laws cap the maximum interest rate that can be charged on overdue payments in Alabama.
8% default rate; 6% on written contracts without a specified rate
Alabama sets a default interest rate of 8% per annum when no rate is specified in the agreement. For written contracts that do not state an interest rate, the legal rate is 6%. Parties may agree to higher rates in writing for commercial transactions.
Commercial loans and business transactions may negotiate higher interest rates. Alabama courts generally enforce agreed-upon rates in arm's-length business deals.
Understanding what you can and cannot charge for late payments in Alabama.
Alabama does not have a specific statute governing late fees on commercial invoices. Late fees must be agreed upon in the contract and must be reasonable. Courts may strike down fees deemed to be penalties rather than legitimate liquidated damages.
No statutory cap; must be reasonable and agreed upon in advance.
Alabama courts apply a liquidated damages analysis. The fee must be a reasonable estimate of actual damages from late payment, not a penalty designed to punish.
Alabama Prompt Payment Act sets deadlines and penalties for late payments in Alabama.
30 days after receipt of proper invoice for public works contracts.
Interest at 1% per month on unpaid amounts after the deadline.
Alabama's Prompt Payment Act primarily covers public works and government contracts. Contractors and subcontractors on public projects are entitled to timely payment, and prime contractors must pay subcontractors within 7 days of receiving payment from the government entity.
Certain industries in Alabama have additional rules around payment timelines, liens, and collection procedures.
Construction: Alabama's mechanics' lien law (Ala. Code § 35-11-210) requires filing within 6 months of last furnishing labor or materials. A preliminary notice is required for certain claimants.
Government contracts: The Alabama Prompt Payment Act requires government entities to pay within 30 days. Subcontractors must be paid within 7 days of prime contractor receiving payment.
Healthcare: Alabama has specific prompt payment requirements for health insurance claims under Ala. Code § 27-1-17, requiring payment within 30-45 days.
Use this compliant wording on your invoices to clearly communicate your late fee policy in accordance with Alabama law.
Payment is due within 30 days of invoice date. Invoices unpaid after the due date will accrue a late fee of 1.5% per month (not to exceed Alabama's legal interest rate of 8% per annum under Ala. Code § 8-8-1). This late fee provision is agreed upon as liquidated damages for the administrative cost of managing overdue accounts.
This wording works because it clearly states the rate, when it applies, and references Alabama legal standards. Always ensure your stated rate complies with Alabama's usury limits.
Practical tips for invoicing within Alabama's legal framework.
Before you can charge a late fee in Alabama, your client needs to have agreed to the terms. Include your late fee clause directly on your invoice and in your contract.
Alabama caps interest rates at 8% (default) / 6% written. Charging above this limit can void your right to collect interest entirely and may expose you to penalties.
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Compare Alabama's rules with neighboring and commonly referenced states.
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