The shape of the charge decides it. A late fee calculated as a percentage that accumulates the longer payment is delayed is an increase on a debt in exchange for time, which is riba in its clearest form - and this is true whether a bank charges it or a small business does. A fixed one-time charge that genuinely reflects the administrative cost of chasing a late payment is treated differently by many scholars, because it compensates a real expense rather than pricing the delay. Several Islamic financial institutions take a further step, imposing a penalty to deter default but donating the proceeds to charity rather than recognising them as income, on the reasoning that the deterrent is legitimate while profiting from another's default is not. What is clearly available to you is the practical route: require payment upfront or on delivery, offer an early settlement discount, suspend further service until the account clears, and pursue the debt through proper channels.
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Because agreement does not change what the charge is. The customer owes you a debt, and requiring more because time has passed is an increase on a debt in exchange for time. Contractual consent, commercial normality and legal enforceability are all real, but none of them is the standard being applied - the same objection is raised against bank late fees, and a small business charging 2% monthly is doing the same thing at a smaller scale.
Many scholars permit a fixed one-time charge reflecting the genuine administrative cost of chasing the payment - reminders, calls, statements, collections work - because it compensates a real expense rather than pricing the delay. The conditions are that it reflect actual cost, stay fixed rather than accumulating, and be disclosed at contracting. The test is whether it grows: 500 rupees once is different from 500 rupees per week.
Several Islamic financial institutions impose a late penalty to deter default but do not recognise it as income - the proceeds go to charity. The reasoning is that a deterrent is legitimate while profiting from someone's default is not. A business can do exactly the same: state a late fee in your terms and donate what you collect. You keep the incentive without benefiting from the delay.
Reward prompt payment rather than penalise delay
Offering a modest discount for payment within a short window achieves the same commercial outcome as a late fee while being a genuine price reduction rather than a charge for time. Sellers may price differently in different circumstances.
Keep the discount modest against a normal price. An inflated headline price with a large discount attached functions as an interest rate in reverse.
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