Late fees sometimes proper and legal way. As we are storing the user's data and running their services without any issue though they haven't paid so there should be late fees.
Many clients used to pay the bills on time due to late fees.
I always wonder why people find it difficult to pay late fees on hosting services, while they readily pay all other kinds of late fees such as the ones on their phone bills etc.
Even some landlords and residential rental companies will impose late charges to your housing rents if your late and even in cases that you pay partially but don't pay the full amount on time.
While late fee's I think in everyone's mind sounds a reasonable thing to ask for especially when the customer decided not to pay on time, but collecting it I think is a whole other story which doesn't always end up happening. Let's put it this way if they aren't paying the original amount they owe you, most likely that late fee they aren't going to pay either and they will just move on to the next provider.
Since the API for PayPal "Billing Agreements" has come along the customer now has to make an effort not to pay, the default is that they will pay.
In some cases late fee is good but in some cases it not. We pay our bills on time just because we know if we will not pay on time then we will have to pay some extra charge as a late fee. So in this case many people prefer to pay bills on time.
But some cases late fee irritate a lot and put a question on loyalty.
It works but in my opinion it is not targeted to make a profit but to avoid customers making late payments.