Advanced Late Payment Interest Calculator

1. Take the overdue amount. Use the full invoice total including sales tax or VAT, unless your terms say otherwise. The customer owed you all of it.
2. Count the days late. Interest normally starts the day after the due date and runs to the day the money arrives.
3. Convert your rate to a daily rate. Divide an annual rate by 365, or a monthly rate by 30.
4. Multiply. Overdue amount × daily rate × days late.
5. Add any fixed fee for the cost of chasing the debt, if your terms or your local law allow one.

The calculator above does all five steps and gives you the line items to paste onto the invoice.

A defensible rate is one that reflects what the late payment actually costs you: your cost of borrowing, plus the administrative cost of chasing. Statutory schemes tend to land between 8 and 12% a year, and 1.5% per month (18% a year) is the most common contractual figure on commercial terms.

Rates far above that are where the trouble starts. Many jurisdictions will not enforce a charge that looks designed to punish rather than to compensate, and consumer contracts are usually capped much lower than business-to-business ones. Check the rules that apply to you before setting the number.

Accrued interest is the interest that has built up on an invoice but has not yet been charged or paid. It grows every day the invoice stays open, whether or not you have raised a document for it.

This matters at two moments. At month end, accrued interest on your ledger is income you have earned but not billed. And when you finally raise the charge, the accrued figure is what you bill: the daily rate multiplied by every day from the due date to the date of the new invoice. The Daily Interest figure in the results panel above is the amount accruing each day, so you can see exactly what another week of silence is worth.

A late fee is a flat amount added once, such as $40 for the cost of chasing the invoice. Penalty interest, sometimes called default interest, is a rate that accrues over time, so it keeps growing until the invoice is paid.

The two do different jobs and most terms use both: the fee covers the administrative cost of the first chase, and the interest covers the cost of the money being late. This calculator lets you apply either or both at once.

Despite the name, "penalty interest" still has to compensate rather than punish. A charge that cannot be tied back to a real cost is the kind most often struck out in a dispute.

Use simple interest unless you have a specific reason not to. Simple interest charges the rate on the original overdue amount only. Compound interest charges it on the interest already accrued as well, so the balance accelerates.

Most statutory late payment schemes require simple interest, and compounding is easier for a customer to contest if your contract does not spell it out. The compound option in the calculator applies interest at the end of each full 30-day month, and it is off by default for that reason.

Sometimes. Several jurisdictions give business suppliers an automatic statutory right to interest that applies whether or not the contract mentions it. The UK is one: see the UK statutory interest calculator for the rate and the fixed compensation sums. The EU has an equivalent regime under its Late Payment Directive.

Where no statutory right exists, your ability to charge comes from your terms. That is an argument for putting the rate in the contract, on the quote and on the invoice itself, well before anything goes overdue.

The day after the agreed due date, in almost every scheme. If you agreed net 30 and the invoice was dated the 1st, payment is due on the 31st and interest starts on the 1st of the next month.

If you never agreed a payment date, statutory schemes commonly fall back to 30 days from delivery of the goods or service, or 30 days from telling the customer what they owe, whichever comes first.

1. Raise a separate invoice or add the charge to the next statement. Do not edit the original invoice, since it has already been sent and may already be in the customer's accounting system.
2. Show your workings on the line item: the rate, the days overdue and the amount it was applied to. A charge that explains itself gets queried far less often.
3. Reference your terms or the legislation you are relying on.
4. Give the new charge its own due date.

The results above generate these line items for you, already worded and ready to copy.

No. Working out the figure and charging it are separate decisions, and the calculation is useful on its own. Plenty of businesses put the accrued interest in front of a customer as a fact, then waive it in exchange for immediate payment. That is often worth more than the interest itself.

What does not work is having no policy at all. If you never quantify the cost of being paid late, the customer never has a reason to pay you before someone who does.

Yes. Use Add Invoice to build the whole overdue set for one customer. Each invoice gets its own days overdue, interest and admin fee, and the results panel totals them so you can raise a single charge covering the lot. The line item block lists every invoice separately, which is what you want if the customer disputes one of them.

This calculator is deliberately jurisdiction-neutral so you can enter whatever rate your terms or your local law specify. For the statutory schemes we cover in detail, use the UK statutory interest calculator or the EU Late Payment Directive calculator.