Can You Charge a Failed Payment Fee? Dishonour, Returned-Payment and Late Fees for Tutoring Clients
Rules checked 1 to 5 October 2026. Fees and consumer law change, so check the linked sources and take advice before you add a fee to your terms.
A direct debit fails because a family’s account is short. Your payment provider charges you a few dollars. The family, who forgot, pays nothing. Can that cost go back to them as a dishonour fee or failed payment fee? I run EquateIt, a tutoring company in Victoria, and the short answer is: sometimes, in a narrow form, and usually not worth it.
Can a tutoring business charge a family a fee when a payment fails?
Often yes in principle, but only in a limited form, and the details differ by country. Recovering the actual cost your provider charged you, written into your terms and agreed upfront, is the safest version. A larger flat fee or a percentage late fee is where consumer-protection law bites, because a term that punishes rather than compensates can be unfair. In Australia and the UK, unfair terms in consumer contracts are regulated. In the US, state law is where returned-payment rules sit. For most tutoring businesses, preventing the failure and calling the family works better than any fee.
General information, not legal or financial advice. ClassQuill is a software company, not a law firm. Whether a particular fee is enforceable depends on your contract, your location and the facts. Speak to a solicitor or attorney before adding a fee to your terms.
Where do failed-payment costs actually come from?
They mostly come from bank debit rails, not cards.
- Direct debit (BECS in Australia, Bacs in the UK, ACH in the US). If the payer’s account lacks funds, the payment fails and your provider or bank may charge you a fee. Check your provider’s terms for what they charge and whether you can pass bank charges on.
- Card. A declined card costs you nothing at the moment of decline. Real costs come later: Stripe’s Australian pricing lists A$25 per dispute received.
- PayID or bank transfer. A family who has not paid has not paid. There is no failure fee, only the chasing.
So the thing owners are really asking about is the cost of a debit that bounces. If you do not take direct debits, the question mostly turns into a late fee question.
Here is what I have seen. Direct debit is cheaper: Stripe’s published BECS rate is 1% + A$0.30, capped at A$3.50 per transaction (stripe.com/au/pricing, checked 5 October 2026), and a quote we received came in around 1.3%. But Stripe does not publish a failed-debit fee for Australia, and we were quoted $5 for a failed debit. Treat that as one data point, not a rate. On a $60 session, $5 is more than 8% of the payment, which is why the question of who carries it matters. If you take cards instead, Australia now bans card surcharges, so you absorb the card cost anyway (see card surcharges for tutoring businesses). For how these fees add up, see what Stripe charges a tutoring business.
No parent at EquateIt has ever disputed or reversed a payment, so I can’t give you a dispute story from experience.
What are the rules in Australia?
Two things matter: the contract terms and the consumer-law fairness test.
Under the Australian Consumer Law (Schedule 2 of the Competition and Consumer Act 2010), a term in a standard-form consumer or small-business contract can be void if it is unfair: it causes a significant imbalance, is not reasonably necessary to protect a legitimate interest, and causes detriment. The ACCC publishes guidance on unfair contract terms, including the penalties that apply, and you should read it before you write a fee clause.
Tutoring agreements between a family and your business may well be standard-form consumer contracts, so ask a solicitor how yours is treated. That is why the wording of your fee clause matters. A fee that matches a documented bank or provider charge is easier to defend than a flat penalty. A fee out of proportion to your real cost is where a fairness challenge is most likely.
Your own terms are where this belongs. The service agreement guide covers clause basics, and I would put any fee in plain words there rather than in an invoice footer.
What are the rules in the UK?
The Consumer Rights Act 2015 lets a court treat a consumer contract term as unfair if it creates a significant imbalance to the consumer’s detriment. The Competition and Markets Authority’s guidance on unfair contract terms, updated on 22 July 2026, covers fairness, transparency, and fees and penalties. The statutory late-payment regime is for business-to-business debts, so it does not apply to parents. For a UK tutoring business, the same logic applies as in Australia: recover a real, evidenced cost in a clear term, or do not charge.
What are the rules in the US?
I found no single federal rule to cite for a returned-payment fee on a service like tutoring, and that is the point: state law sets the limits, so the rules differ by state. Many states also expect the customer to have agreed to the fee in advance, at the point of sale or in the agreement. Check your state attorney general’s or consumer protection office’s guidance before you add a fee, and if you serve families in several states, design to the strictest. Late fees on service contracts vary by state too. This section is a pointer, not experience.
What are your options, from cheapest to most formal?
- Prevent the failure. Send a reminder a day or two before a debit or a due date. Move the due date to just after payday if the family pays by debit. Ask for a different method if a family keeps failing. Paying per term by bank transfer removes the problem for most of the year: the family sends one payment themselves, so there is no debit to bounce, and you check payments once per term (see charging by the term).
- Absorb it. If it happens a few times a year, a $5 charge is cheaper than the awkward conversation. A hypothetical: if 3 in 100 monthly debits fail and each costs $5, that is $15 a month, $180 a year. That is an illustration, not EquateIt’s data.
- Phone first. The payments pillar makes the case that most late payments are forgetting, and that a call solves it better than a penalty.
- Pass on the actual cost, itemised. Put it in your agreement: “If a payment fails, we may pass on the fee charged to us by our payment provider, which is currently $X.” Show the real cost on the invoice. This is the narrowest version that is likely to be defensible, but check it with a solicitor.
- A flat late fee. The highest risk. A percentage on top of an invoice is hard to tie to a real cost and is where fairness challenges and cancellations both show up.
What does a good clause look like?
Keep it short, specific and visible, and have a professional review it. A clear clause covers what triggers it, the amount or how it is worked out, that it reflects a real charge, and when the family is told. Avoid bundling it with a general penalty clause. Set expectations at sign-up: a family who has agreed upfront is far less likely to object. That is the same reason my cancellation rule works, which I cover in the guide to what the law lets you enforce on tutoring cancellations.
ClassQuill records how each invoice was paid and its status (draft, sent, paid, overdue), so you can see who is outstanding without a spreadsheet. It does not collect by direct debit, and this post is not about any one provider. For a comparison of the schemes, see direct debit for tutoring businesses.
Frequently asked questions
Can I charge a dishonour fee to a tutoring client in Australia? Possibly, if it is a clear term in your agreement and reflects your actual cost. A fee out of proportion to the cost risks being an unfair contract term. Get the clause reviewed.
Can I charge a late payment fee in the UK? The statutory late-payment regime is for business debts. For parents, a fee must be fair under consumer law, so tie it to a real cost or avoid it.
What is the cap on returned payment fees in the US? State law sets the limits, so check your state’s rules rather than relying on a single number.
What if a family keeps failing? Offer a different payment method, move to a term or monthly invoice, or speak to them directly.
The cheapest failed-payment fee is the one you never have to charge.
For the wider payments picture, see the payments and invoicing guide and setting your rates.
Related reading
- How to handle payments and invoicing as a tutoring business
- Direct debit for tutoring businesses
- Should you charge for tutoring by the term, upfront?
- Tutoring cancellation and refund policies: what the law lets you enforce
- Can you charge families a surcharge for paying by card?
- How much does Stripe charge a tutoring business per payment?
- Tutoring service agreement: what to include
