Summary
Xero has no built-in way to add late payment fees to an invoice. You add the fee by hand, either as a new line on the overdue invoice or as a separate invoice that references it, or you automate it with an app connected to your Xero organisation.
- Manual route: Raise a new invoice to the same Xero contact for the fee or interest, quoting the original invoice number, so the original sale record stays untouched.
- UK statutory rate: Business-to-business debts carry the Bank of England base rate plus 8% a year, 11.75% for invoices that fall overdue in 2026 (8% plus the 3.75% reference rate set on 31 December 2025 and 30 June 2026), plus a fixed sum of £40, £70 or £100 by debt size.
- Automated route: Paidnice adds the fee to the overdue invoice in Xero on a policy you set once per customer group, with no manual step per invoice.
Does Xero charge late payment fees automatically?
No, Xero has no native feature to calculate late payment interest or apply a late fee to an overdue invoice. Xero marks the invoice as overdue and can email a reminder, but the rate, the day count, the charge and the resend all stay with you.
The request has sat on the Xero Product Ideas board since 29 March 2012. The thread Sales invoices: add interest to late invoices holds more than 1,100 votes, and Xero's last response, on 7 July 2025, gave no committed plans to build the feature.
Until that changes, a Xero user has two routes. The first is manual: add the fee as a line on the overdue invoice, or raise the fee on its own invoice to that customer. The second is a Xero App Store app connected to the Xero organisation, such as Paidnice, which calculates the fee and posts it to the ledger when the invoice goes overdue, or after the grace period you set.
The video below shows both routes: the manual invoice in Xero, then the automated policy.
Does Xero automatically send overdue invoices?
Xero can email automatic reminders about overdue invoices, but a Xero reminder never adds a late fee or interest to the amount owed.
Under Sales, Invoices, Invoice Reminders you can schedule emails before or after the due date. A reminder carries no charge and does not touch the ledger. To turn a reminder into a fee on the invoice, you still need one of the two manual methods below, or an app that applies the fee when the invoice goes overdue.
How do I add a late fee to an invoice in Xero?
Add the late fee in Xero as a new line on the existing overdue invoice, or as a new invoice to that customer quoting the original invoice number. Xero does not calculate or apply either step for you.
The separate invoice is the cleaner route, because the original stays the record of the sale and the fee gets its own tax treatment. The steps:
- Work out the charge: days overdue multiplied by the daily rate, plus any fixed sum your terms or the law allow.
- Create a new sales invoice to the same contact, dated today.
- Add one line, "Late payment interest on invoice INV-1001", with the amount. Ask your accountant which tax rate to use on the interest line.
- Approve it, send it, and include it on the customer's next statement.
Adding a line to the existing invoice is quicker for a small one-off charge, but it changes the original sale record. Xero lets you change only some fields on a paid or part-paid invoice unless you remove the payment first, and a lock date stops changes to transactions in a locked period. A separate invoice avoids both.
Either way the calculation is manual, and it goes stale the day after you raise it.
How much should a late payment fee be?
A late payment fee on a UK business-to-business invoice is set by statute: 8% a year over the Bank of England base rate, which is 11.75%, plus a fixed sum of £40, £70 or £100 per invoice.
The rate comes from the Late Payment of Commercial Debts (Rate of Interest) Order 2002: the base rate in force on 30 June or 31 December applies to interest that starts running in the following six months. The fixed sum is £40 for a debt under £1,000, £70 from £1,000 to £9,999.99, and £100 at £10,000 or more. You cannot claim more than base rate plus 8% as statutory interest.
Our guide to statutory interest has the full calculation, and the late payment interest calculator does the arithmetic for one or more invoices.
In the US there is no national rate. Each state sets its own limit, and most states set no cap on business invoices. A few states cap the interest rate. Our guide to late fee laws by US state lists the limits.
In both markets the fee belongs in your payment terms before the invoice goes out. Our late fee policy wording examples give the clause, and the late fees hub covers the rules market by market.
Is charging late payment interest and fees legal in the UK?
Yes, late payment interest and a fixed fee are legal on UK business-to-business invoices: the Late Payment of Commercial Debts (Interest) Act 1998 implies statutory interest and a fixed sum of £40, £70 or £100 into every qualifying contract, with no clause needed.
UK statutory interest runs at 11.75% a year on invoices that fall overdue in 2026, the Bank of England base rate plus 8%. A late fee of any other kind needs a clause in your terms, and a fee that works as a penalty can be unenforceable.
A contract term that tries to exclude statutory interest is void unless the contract gives the supplier a substantial remedy of its own. Invoices to consumers sit outside the Act, so a consumer late fee has to be a fair term in your contract.
Our page on UK late payment law covers the Act in full and the Commercial Payments Bill now in Parliament, which is not yet law.
In the US a late fee on a business invoice is legal when it is written into your contract or terms in advance and is reasonable. A few states also cap the interest rate.
How do I automate late fees in Xero?
Late fees in Xero are automated with a connected app such as Paidnice: Paidnice connects to the Xero organisation, you set a late fee policy once, and the fee posts to Xero when an invoice goes overdue, or after your grace period.
Xero has no native late fee feature, and the request for one on the Xero Product Ideas board holds more than 1,100 votes. Paidnice charges every overdue Xero invoice on the same rules without opening each one:
- An invoice late fee on each overdue invoice, as a flat amount or a percentage, with a fixed-amount line for the UK £40, £70 or £100 compensation.
- Statement interest on the customer's whole overdue balance, with a Bank of England base rate toggle that either locks the rate for each six-month period, as the Order sets it, or follows the base rate as it changes.
- Compounding is on by default through the "Include previous interest charges" toggle. UK statutory interest is simple interest, so switch it off if you charge statutory interest only. Adjust for Credit works the charge out on the net balance when the customer holds a credit.
- The charge raised in Xero as a Draft or Approved invoice with its own tax rate, including "not applicable", so it sits in the customer's aged payables rather than only in an email.
Paidnice setup has three steps: connect the Xero organisation, create one late fee policy and assign the policy to a customer group. Start free, no card needed.
A disputed invoice comes out of the policy with a reference filter while the policy stays on for every other customer. Paidnice customers cut their average wait for payment in half, within 30 days. The add late fees to Xero invoices automatically page has the setup in full.
What do late fees look like on three overdue invoices?
On three overdue UK invoices, #1001 for £1,000, #1002 for £500 and #1003 for £750, the statutory fixed sums come to £150, and 30 days of statutory interest at 11.75% on the combined £2,250 comes to about £22.
As invoice late fees, each invoice carries its own fixed sum: £70 on #1001, £40 on #1002 and £40 on #1003, which is £150 across the three, each raised against the invoice it belongs to.
As statement interest, the combined £2,250 at 11.75% a year accrues £0.72 a day (£2,250 × 11.75% ÷ 365). Over 30 days that is £21.73, raised as one monthly charge against the account rather than three. Paidnice recalculates the figure at the moment the statement is sent, so the number the customer opens is current that morning.
Frequently asked questions
These answers cover three common questions about late fees in Xero.
How do late fees close the gap between invoice and payment in Xero?
A late fee applied the same way to every overdue Xero invoice closes the gap between invoice and payment, because the fee puts a cost on paying late. Xero sends reminders, but it does not calculate or charge anything when an invoice stays unpaid.
Try Paidnice free and start applying late fees to your Xero invoices automatically, or book a demo and we'll set it up with you.
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