Q. As landlords or administrators of Islamic schools, how do we overcome the trouble of tenants or parents making late payments?
A. A penalty fee for the late payment of rent is not allowed, as it would be Riba (interest) (Shaami 5/166).
As an alternative, a landlord or an administrator of an Islamic school may inflate the fees for e.g. by 10% and if anyone pays timeously, they will be offered a discount of 10%. This would suffice as an incentive for people to make timeous payments and would eliminate the issue of Riba (interest).
Allah Ta’ala Knows Best
Mufti Ismaeel Bassa
This answer was collected from TheMufti.com, which is a fatwa portal managed by Mufti Ismaeel Bassa from South Africa.