Charging a Late Payment Fee – Is It Ribbis?

Hi, I do video editing for companies, and after I send the final version, I often find myself having to chase them for the payment. Would it be permitted for me to charge a fine if they are late with the payment, or would that be considered ribis?

Thank you for your question.

The answer:

It would be permitted for you to do so, however, only as a one-time fine, for example, if they delay the payment up to two weeks, there will be a 15% charge. But it would not be permitted to charge them again every two weeks, for example.

The answer explained in depth:

We know that the type of ribbis forbidden min haTorah is when someone lends money on condition that he receives more than he gave.
The Gemara explains that this is considered אגר נטר payment for the time that the borrower was able to use the money.

Now, for example, if I lend someone money and do not stipulate any additional payment, but tell him that if he doesn’t repay by a certain date he will be charged an extra amount, one could argue that this is not truly אגר נטר. Since if he pays back on time there are no extra charges, and the additional payment only applies if he delays beyond the agreed date, this would not be payment for the use of the money during that time. Rather, it is an immediate penalty for late payment.

This is a major machlokes Rishonim in Maseches Bava Basra 178a.

תלמוד בבלי מסכת בבא בתרא דף קסח עמוד א

מתני'. מי שפרע מקצת חובו, והשליש את שטרו ואמר לו: אם לא אתן לך מכאן ועד יום פלוני תן לו שטרו, הגיע זמן ולא נתן - רבי יוסי אומר: יתן, 

Bava Basra 168a:

Mishnah:
 If someone repaid part of his debt and deposited the promissory note with a third party, saying to him, “If I do not pay you from now until such-and-such a day, then give him back his note,” (so he will be able to claim the full amount as if the dept wasn’t partly paid), if the time arrived and he did not pay, Rabbi Yosi says: the third party must give him (the creditor) the note (of the full amount).

So the Rishonim ask: how is this possible? Since he will be claiming the full amount again, the borrower will be receiving much more money than what he lent.
 The Ri Migash, the Meiri, and the Shut HaRashboh (volume 1, siman 651) write, as we explained earlier, that since he could have returned the money without having to pay the fine so paying the fine is not considered as prolonging the time of the loan.

However, the Rashboh writes that, nevertheless, it should not be done, since MiDerabanan we forbid any monetary gain that the lender would receive from the borrower.
 The Shulchan Aruch rules like the opinion of the Rashboh, as follows:

שולחן ערוך יורה דעה הלכות ריבית סימן קעז סעיף יד

האומר לחבירו: אם לא אפרעך לזמן פלוני הריני חייב לך מעכשיו ולזמן העיכוב כך דינרין (יותר ממה שהלוהו), אסור מפני הערמת רבית. 

Shulchan Aruch, Yoreh De’ah – Hilchos Ribbis, Siman 177:14

One who says to his friend: “If I do not repay you by a certain date, I will owe you from now an additional amount,”  it is forbidden, since this is considered a form of ha’aramas ribbis (a deceptive way of taking interest).

All the above applies to a loan. Since it is a one-time payment, it is an issur derabbanan. However, if one would charge a fine more than once, that would be an issur d’Oraisa, since the payment would be considered as paying for more time.

However, if it is done through a sale or payment for work,  like in your case, where one wants to charge a fine for late payment, since it is within the framework of payment for work done and not a loan, we are lenient and allow one to charge a fine for late payment.
 However, to charge more than once is forbidden, since that would resemble ribbis, where for every additional period of time, one must pay extra. This brought in the Shulchan Aruch as follows:

שולחן ערוך יורה דעה הלכות ריבית סימן קעז

המוכר סחורה לחבירו בס' זהובים שקבל מיד והתנה לתתה לו לחצי שנה, ואם יעבור על זה שיתן בעבורה ק' זהובים, וקנו מידו והגיע הזמן ולא נתן, חייב ליתן הק' זהובים. 

Shulchan Aruch, Yoreh De’ah – Hilchos Ribbis, Siman 177

If one sells merchandise to his friend for sixty gold coins, which he receives immediately, and stipulates that the goods will be delivered in six months, and if he fails to do so, he will then have to pay one hundred gold coins, and they made a proper kinyan, then when the time arrives and he does not deliver, he is obligated to pay the hundred gold coins.

Wishing you much success.

1. Bava Basra 168a
2. Ri Migash Ibid
3. Meiri Ibid
4. Shut HaRashba vol. 1 siman 651
5. Shulchan Aruch Yoreh De’ah 177:14
6. Shulchan Aruch Yoreh De’ah 177:18