Good question. An answer could be long(er), reflect the murky state of the law and by no means purport to be definitive. In your case, on the facts posted, I believe it’s simpler. I wouldn’t think about a late charge in this instance, but I would start using written agreements and including some provision in the future.
I think the fact that you don’t have a written agreement, don’t have a prior history of dealings and have already sent invoices without including a late fee should control your present decision.
To first complicate things, note that “late fee” is often used interchangeably with service charge, delinquency charge, and finance charge. If you work your way through Calif. statutes in the Civil Code, Insurance Code, Finance Code and the Calif. Constitution, as well as some Federal Statutes, the terms have specific and different definitions. If you draft an agreement for the future, you’re probably best-served by late fee or service charge.
You’re safest if your client knew in advance – i.e. in a written agreement – of an intention to make the charge and all of your invoices had language to the effect that “All accounts not paid within X days of the date of this invoice incur a Y% monthly service charge”. Calif. courts have allowed a fee in the absence of contract when all billing included the language. Yours don’t, and I’ve experienced rejection of the invoice when there was no related agreement. You’re not going to try to set precedent, so accept the fact that it could go either way on any given day.
Calif. courts have held that the amount of service charges charged by a creditor must be reasonably related to the actual damages suffered by the creditor and recognized that accounting and collection costs are incurred when a customer fails to pay a bill. On this basis, service charges of up to 18% APR or 1.5% monthly have been upheld when a creditor could make the requisite showing. That’s not to say that all creditors could, if required, or that a higher cost could not be proven, but that number presently has support in case law.
Reference was made to the Constitution because Calif. usury laws cap the interest rate on any loan at 10% APR. However, courts have held that a sale of goods or services on credit is not a loan, and therefore not subject to the usury laws. Still, you should be mindful of any ruling which changes this in the future (and could cap you at 10%).
Calif. Civil Code sect. 3302 provides “The detriment caused by the breach of an obligation to pay money only, is deemed to be the amount due by the terms of the obligation, with interest thereon.” The statutory pre-judgment interest rate is 10%, and I think that you must sue (in Small Claims?) and be content with that for the instant matter.
Sorry, I’m sure that you were hoping that someone would just post a number. In fact, it’s a difficult area.
Tell your former client that the letter is the final effort to resolve the matter voluntarily. If payment is not received within X days of the letter date, you will pursue involuntary recovery and will include principal, costs, fees and interest in your demand. Then, do it.