It’s interest for the delay in payment.

At first glance, it is forbidden to claim the interest. In my previous message I was only wondering whether this is really not a hidden penalty that the state imposes on those who delay payment, in which case perhaps it would be permitted. But now I have a few more thoughts about it.

1. First, since you did not stipulate it in advance, this is not fixed, stipulated interest but only rabbinically prohibited interest. And regarding rabbinic interest, there is room to say that the law of the kingdom is law could help.
2. The usual rationale of interest does not really apply here, since you are not pressing some poor person and exploiting his hardship in order to extract money from him. He genuinely failed to meet his obligation to repay.
3. Also, ordinary interest is payment for waiting for the money during the agreed term of the loan. But here he exceeded the agreed term and delayed even longer. There is room for the reasoning that payment for waiting beyond the agreed term is not really interest in the full sense.
4. Here too one should distinguish between a case where he asks for an extension and you agree to the extension in exchange for interest (which is like a new stipulation), and imposing interest as a penalty for an unauthorized delay. Such a case is really just collecting damages caused indirectly (he caused you indirect damage by preventing you, for some period of time, from using money that would have brought you profit). A rabbinical court, or the town leaders (community leaders, the Knesset, and the court system), may establish that indirect damages are collectible.

For all these reasons, in my humble opinion there is room to be lenient here, since this is a rabbinic law and thus a case of doubt concerning rabbinic law.

By the way, collection of the debt will apparently be done through the Enforcement and Collection Authority, and they collect interest on the debt from the day the collection request is filed until the moment of collection. Those are the regulations of the Enforcement and Collection Authority. The question is whether I need to return the interest that they collected from the debtor. And in addition, even if I do return it, the question remains whether there was still a prohibition of interest here (and the return is only a penalty, but does not undo the prohibition of interest that was already committed).

I didn’t understand whether the interest is collected for you or whether it is a payment to them.
If it is for them, then of course he brought the damage upon himself. You are not responsible for what the Enforcement and Collection Authority does. He is responsible, because he did not pay and forced you to resort to them.
If it is for you, then see everything I wrote above. If there was a prohibition, then even if you return the interest you still violated a prohibition. Although perhaps since you were under compulsion and you are returning it, there may be room to distinguish. But as I wrote in the previous message, it seems to me that there is room to be lenient (because this is collection for indirect damages).

Thank you very much!

Following up on this question: the debtor approached me requesting a debt arrangement with installment payments. He made the arrangement conditional on freezing the proceedings in the Enforcement and Collection Authority. If I continue the proceedings there, I risk his declaring bankruptcy. My question now is whether I may demand late-payment interest as part of the debt arrangement. The reason I think this may be permitted is that legally he already owes me the full amount as of yesterday, and he is asking for monthly installment payments over several years. If I agree to that, then I lose the interest I could have earned through an ordinary bank investment, and I want him to reimburse me for that as compensation.

Offhand, it does not seem to me to be permitted. With any interest, you could say that it is only compensation for your inability to invest the money. An installment arrangement is like a new loan, and it may be that if you demand interest, that would be fixed, stipulated interest (since you are stipulating it at the time of the loan).

Is it permitted to agree on a one-time late-payment penalty for the delay in payment?
In addition, the debtors are a registered nonprofit association and not a private individual—does that change the halakhic treatment regarding the prohibitions of interest?
And also, could a permissible business arrangement help in this situation?

I don’t think so. That arrangement is like a new loan (essentially, you are deferring repayment in exchange for interest). As I wrote above, within the framework of the Enforcement and Collection Authority, in my opinion this is easier, because the interest is really a penalty imposed by the state, and then perhaps one can assume that it is a punishment and not interest (which is created by a mutual agreement between you. A stipulation).

As for an association, perhaps there is more room to be lenient. Some have written that businesses and banks are not included in the prohibition of interest. To be sure, most halakhic decisors do not accept that sweeping claim, but there is logic to it. But with an association, I am doubtful whether its status is like that of a business, since it is not established for profit, and therefore there is room דווקא to compare it to a private individual. The mere fact that this is a corporation and not a person is indeed a leniency, but a weaker one. I don’t know whether it is correct to permit on that basis.

A permissible business arrangement has to be made before the loan, because only then can the money transferred be considered an investment arrangement rather than a loan. Of course, if you make such an arrangement now and now create a new loan with interest (deferring repayment with a penalty) in a permitted way, that is perfectly fine. But then it should not be defined as a late-payment penalty; rather, it must be structured like an investment arrangement in which profits are transferred to you (and losses as well). This depends on the details and structure of the permissible business arrangement, and one would need to check with experts in the field exactly how to do it.