diff --git a/contracts/invoice-escrow/src/errors.rs b/contracts/invoice-escrow/src/errors.rs
index 53efb91..ab669da 100644
--- a/contracts/invoice-escrow/src/errors.rs
+++ b/contracts/invoice-escrow/src/errors.rs
@@ -104,4 +104,4 @@ pub enum Error {
     InsufficientRepayment = 44,
     /// New funding deadline must be greater than the current deadline.
     DeadlineNotExtended = 45,
-}
\ No newline at end of file
+}
diff --git a/contracts/invoice-escrow/src/events.rs b/contracts/invoice-escrow/src/events.rs
index 30408a1..f527c23 100644
--- a/contracts/invoice-escrow/src/events.rs
+++ b/contracts/invoice-escrow/src/events.rs
@@ -274,4 +274,4 @@ pub fn settlement_paid(
         (Symbol::new(env, "settlement_paid"),),
         (investor.clone(), invoice_id.clone(), payout_amount, yield_earned),
     );
-}
\ No newline at end of file
+}
diff --git a/contracts/invoice-escrow/src/lib.rs b/contracts/invoice-escrow/src/lib.rs
index c654064..5e49959 100644
--- a/contracts/invoice-escrow/src/lib.rs
+++ b/contracts/invoice-escrow/src/lib.rs
@@ -75,11 +75,24 @@ impl InvoiceEscrow {
             paused: false,
             whitelist_enabled: false,
             min_investment: 0,
+            grace_period_seconds: 0,
         };
         storage::set_config(&env, &config);
         Ok(())
     }
 
+    /// Admin-only: set the grace period window for overdue invoice settlement.
+    pub fn set_grace_period(env: Env, admin: Address, grace_period_seconds: u64) -> Result<(), Error> {
+        admin.require_auth();
+        let mut config = storage::get_config(&env).ok_or(Error::NotInit)?;
+        if config.admin != admin {
+            return Err(Error::Unauthorized);
+        }
+        config.grace_period_seconds = grace_period_seconds;
+        storage::set_config(&env, &config);
+        Ok(())
+    }
+
     /// Admin-only: set the minimum investment amount for `fund_escrow`.
     /// Pass `0` to disable the floor (deposits must still be strictly positive).
     pub fn set_min_investment(env: Env, admin: Address, min_investment: i128) -> Result<(), Error> {
@@ -734,8 +747,9 @@ impl InvoiceEscrow {
             return Err(Error::RefundNotAllowed);
         }
         let ledger_ts = env.ledger().timestamp();
-        if ledger_ts < data.due_dt {
-            return Err(Error::RefundNotAllowed);
+        let final_deadline = data.due_dt.checked_add(config.grace_period_seconds).unwrap_or(u64::MAX);
+        if ledger_ts <= final_deadline {
+            return Err(Error::EscrowNotOverdue);
         }
 
         // Refund the remaining collateral (purchase_price minus already released partial payments)
@@ -805,6 +819,7 @@ impl InvoiceEscrow {
             soroban_sdk::vec![&env, contract.to_val(), false.into_val(&env)],
         );
 
+        events::grace_period_expired(&env, invoice_id.clone());
         events::escrow_refunded(&env, invoice_id.clone(), amount_to_refund);
         events::escrow_status_changed(
             &env,
diff --git a/contracts/invoice-escrow/src/types.rs b/contracts/invoice-escrow/src/types.rs
index 8cd3362..2daa47c 100644
--- a/contracts/invoice-escrow/src/types.rs
+++ b/contracts/invoice-escrow/src/types.rs
@@ -76,6 +76,8 @@ pub struct Config {
     /// `0` disables the floor (only `amount > 0` is required). Completing the
     /// remaining capacity below this floor is always allowed.
     pub min_investment: i128,
+    /// Grace period in seconds for overdue invoice settlement.
+    pub grace_period_seconds: u64,
 }
 
 /// Lifecycle status of an escrow.