How to add late payment fees to invoices in Xero in 2026
5 Min Read
June 18, 2026
Denym Bird
Co-founder & CEO of Paidnice
Xero has no built-in way to add late payment fees or interest to your invoices.
It will flag an invoice as overdue, but it won't calculate what you're owed, apply a charge, or raise a fee invoice for you. To add late fees in Xero you either do it manually, by adding a line to the invoice or raising a separate fee invoice, or you automate it with an app like Paidnice that applies your fee rules the moment an invoice goes overdue. This guide shows you both: how to add late fees manually in Xero, the rules on how much you can charge, and how to automate the whole process.
Key takeaways
Xero flags overdue invoices but cannot calculate or apply a late fee for you. Adding the charge is manual unless you automate it.
Two manual options: add a fee line to the original invoice, or raise a separate fee invoice (cleaner, and necessary for UK VAT).
UK statutory interest on business-to-business debts is the Bank of England base rate plus 8% a year, plus fixed compensation of £40, £70 or £100 per invoice.
US late fees are set by state, typically 1% to 1.5% per month.
Paidnice applies your fee and interest rules automatically inside Xero, with a one-click connection and a full audit trail.
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. It marks invoices as overdue, but working out what you're owed, adding the charge, and sending it is all on you.
This is one of the longest-running requests on the Xero Product Ideas board. The thread Sales invoices: add interest to late invoices has been open for years, and as of Xero's last update on it (mid-2025) there were still no committed plans to build the feature. If you want Xero to add it natively, it's worth adding your vote there.
Until that changes, you have two options: add fees manually inside Xero, or use a tool that sits on top of Xero and does it for you.
Two ways to add a late fee to a Xero invoice
There are two methods, and the right one depends on your situation.
1
Add the fee as a line item on the existing invoice
You reopen the original invoice and add a new line for the late fee or interest.
Your Company LtdINVOICEINV-1042
Bill to: Acme Trading LtdDue: 31 May 2026
Brand design package£1,200.00
Late payment fee + Added£40.00
Total due£1,240.00
One document, reopened. The new fee line sits under the original sale.
ProsThe customer sees a single invoice with one total to pay.
ConsYou are editing a document that has already been sent, which complicates reconciliation and muddies the original record of the sale. In the UK it also creates a VAT problem (see below).
Best forSmall one-off fees where you want everything in a single document.
2
Raise a separate late fee invoice
You leave the original invoice untouched and create a new invoice for the interest and any compensation, referencing the original in the description.
Your Company LtdINVOICEINV-1042
Bill to: Acme Trading LtdIssued: 1 May 2026
Brand design package£1,200.00
Total£1,200.00
The original sale, untouched.
Your Company LtdINVOICEINV-1043
Late fees & interestIssued: 18 Jun 2026
Interest, INV-1042 (40 days)£15.45
Compensation, INV-1042£70.00
Interest, INV-1039 (61 days)£11.78
Compensation, INV-1039£40.00
Total due (no VAT)£137.23
A new invoice, charges only.
Pro tip
One fee invoice can consolidate the interest and compensation for several overdue invoices at once (here, INV-1042 and INV-1039). That is far tidier than reopening every original, and it gives you a single clean total to follow up on or waive.
ProsThe original invoice stays intact as the clean record of the sale. You can waive the fee invoice easily if the customer pays quickly, and your charges stay cleanly separated for tracking.
ConsIt is an extra document to manage and reconcile.
Best forMost professional setups, and essential for UK businesses charging statutory interest.
A note on VAT for UK businesses: statutory late payment interest and the fixed compensation charge are outside the scope of VAT. A separate, no-VAT fee invoice keeps these amounts clean, where adding them to a VAT-able invoice risks charging VAT on amounts that should not have it. This is general guidance, not tax advice, so check with your accountant.
How much can you charge in late fees?
The rules depend on where you are.
In the UK, for business-to-business debts you can claim statutory interest of the Bank of England base rate plus 8% per annum, plus a fixed compensation amount per invoice: £40 for debts under £1,000, £70 for £1,000 to £9,999.99, and £100 for £10,000 or more. The base rate moves when the Bank of England changes rates, so your figure has to track it.
In the US, late fees and maximum rates are set state by state and typically land between 1% and 1.5% per month, with some states capping them under usury laws. Our guide to late fee laws by US state breaks down the limits.
Wherever you are, your customer needs to have agreed to the fee, ideally in writing in your payment terms, before you apply it.
How to automate late fees in Xero with Paidnice
This is the part Xero leaves out, and it is what Paidnice was built to do. Paidnice connects to your Xero account in one click and applies your late fee and interest rules automatically, so the right charge lands at the right time without you recalculating anything. Applied consistently, a small fee moves your invoice up the customer's payment queue, which is where the cash flow gain comes from.
What Paidnice handles for you
Both methods, your choice. Add the fee as a line on the existing invoice, or raise a separate fee invoice. You decide per rule.
Any fee structure. A fixed amount (for example £25 per overdue invoice), a percentage of the invoice value, or annualised interest calculated daily so it stays accurate, even on the day the customer pays.
Consolidated statement interest. Instead of a charge per invoice, combine a customer's overdue balances into a single monthly interest charge that compounds with days overdue.
Your timing, your customers. Apply on the due date, after a grace period, or further out. Set different rules for different customer groups, and run it automatically or approve each charge yourself.
UK compliance built in. Paidnice tracks the Bank of England base rate and applies base rate plus 8% automatically, so your statutory interest stays correct.
Forgiving by design. If a good customer pays the day after a fee lands, waive it in a click and Paidnice voids the charge. Partial payments only accrue interest on the amount still outstanding.
A full audit trail. Every action is logged, so you can see what was charged, to whom, and when.
PaidniceDemo CompanySafe Mode OnDB
1 · Choose any fee structure
Fixed late feeA set amount per overdue invoice, e.g. £25
Late fee appliedBasket Case · INV-003614 JunComplete
Under 30 minTypical setup time
~50%Lower days sales outstanding within 30 days
One clickConnects to Xero
"Paidnice saves us hours each week manually tracking, emailing, and following up on overdue invoices. Automating this recovered time spent following up with customers, and resulted in an increase to 97% on-time payments."
🏆 Xero Global App Awards 2025Small Business App of the Year, with a 5-star average on the Xero App Store. Read more ›
A quick working example
Say three invoices go overdue: #1001 for £1,000, #1002 for £500, and #1003 for £750.
As individual invoice late fees at 10%, Paidnice applies £100, £50 and £75, for £225 across the three.
As consolidated statement interest at 18% per annum on the combined £2,250 balance, with the invoices at different ages, Paidnice calculates the daily interest and raises a single monthly charge (around £67 here) rather than three separate ones.
Frequently asked questions
Can Xero charge late fees automatically?
No. Xero has no native feature to calculate or apply late payment fees or interest. You add them manually or use an app like Paidnice that automates it on top of Xero.
How do I add interest to an overdue invoice in Xero?
Either add an interest line item to the existing invoice, or raise a separate invoice to the same customer for the interest. In both cases you calculate the interest yourself unless you automate it.
Should I add the fee to the original invoice or raise a new one?
A separate invoice is usually cleaner: it keeps the original sale record intact and, for UK businesses, avoids mixing no-VAT statutory interest with VAT-able amounts. Adding a line to the existing invoice is simpler for small one-off fees.
How much late fee can I charge in the UK?
For business-to-business debts, statutory interest is the Bank of England base rate plus 8% per annum, plus fixed compensation of £40, £70 or £100 depending on the size of the debt.
Does Paidnice work with Xero?
Yes. Paidnice connects to your Xero account in one click and applies your late fee, interest and reminder rules automatically. It also works with QuickBooks. There is no migration: it sits on top of the accounting software you already use.
Is late payment interest subject to VAT in the UK?
No. Statutory late payment interest and the fixed compensation charge are outside the scope of VAT, because they are compensation rather than payment for a supply. Raising a separate, no-VAT fee invoice keeps these amounts clean. This is general guidance, not tax advice, so check with your accountant.
Close the gap between invoice and payment
Xero is excellent at creating and sending invoices. It just doesn't do anything when they go unpaid. Late payment fees, applied consistently, are one of the most effective ways to fix that, and automating them means it happens every time.
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.
Denym Bird
Co-founder & CEO of Paidnice
Denym is a software entrepreneur and writes about accounts receivables management for small business.
