Late Payment Interest Calculator

How the Late Payment Interest Calculator works

Two worked examples. A 5,000 invoice at 8% accrues 5,000 × 0.08 ÷ 365 = 1.10 a day, so 7 days late adds 7.67. As a second example, 2,500 at 12% for 60 days is 2,500 × 0.12 ÷ 365 × 60 = 49.32. To see how many days it takes to recover a given sum, divide it by the daily figure.

Late payment is the single most common reason small businesses run short of cash, and it is rarely because the customer cannot pay. Industry surveys in the UK and EU put the average commercial invoice at two to three weeks past its terms, and larger buyers routinely stretch smaller suppliers because nothing happens when they do. Late payment interest exists to make something happen. It turns an open-ended delay into a debt that grows every day, and it gives you a precise figure to put in front of the customer instead of a vague reminder.

Where the late payment interest rate comes from

The rate is usually a base rate plus a fixed margin. In the United Kingdom, the Late Payment of Commercial Debts (Interest) Act 1998 sets statutory interest at the Bank of England base rate plus 8 percentage points. The base rate used is the one in force on 30 June or 31 December immediately before the debt fell due, and it then stays fixed for that debt. The European Union's Late Payment Directive (2011/7/EU) uses the central bank reference rate plus at least 8 points, written into each member state's own law. In the United States there is no single federal rate for private commercial debt; the enforceable rate is whatever your contract states, capped by state usury ceilings that range from single digits to no practical limit. The default of 8% in the calculator is a neutral starting point. Replace it with the rate that actually applies to you.

The clock starts at the due date, not the invoice date. On Net 30 terms interest begins on day 31. Where no term was agreed, statutory regimes impose a default, commonly 30 days from receipt of the invoice or from delivery, whichever is later. UK law also caps agreed terms with large public bodies at 30 days and treats business-to-business terms over 60 days as open to challenge.

The interest is simple, not compound. It is calculated daily on the unpaid principal and never added to the balance to earn more interest. The formula is the one the calculator runs: principal × annual rate ÷ 365 × days overdue. A £4,000 invoice at 13.25% (a 5.25% base rate plus 8) accrues £1.45 a day, so 45 days late costs the customer about £65 in interest.

A fixed recovery charge sits on top. UK rules add a flat sum per invoice: £40 for debts under £1,000, £70 for £1,000 to £9,999.99, and £100 for £10,000 and above. The EU minimum is €40. It is per invoice, not per reminder, and it is in addition to the interest, which is why it has its own field. If your real costs of recovery are higher, for example a collection agency's fee, UK law lets you claim the reasonable difference as well.

Expert tips and pitfalls

Put the terms on every invoice. Statutory rights exist without being written down, but an invoice that shows the due date, the late payment interest rate and the recovery charge removes the argument that the customer did not know. It also changes behaviour: invoices that state a consequence are paid faster than invoices that only state a date. The freelance hourly rate guide covers why a few weeks of slow payment can undo a carefully set rate.

Do not invent a punitive contract rate. A contractual rate must be a genuine pre-estimate of loss. Set it at 5% a month and a court may strike it out as a penalty, leaving you with the statutory rate you would have had anyway. A contract can also exclude statutory interest only if it offers a "substantial remedy" in its place; a token 1% a year does not count.

Consumer invoices are different. The UK Act and the EU Directive cover business-to-business debts. Charging a private customer interest needs a clear term agreed in advance, and consumer protection rules can limit it.

Part payments reduce the principal from the day they arrive. If the customer pays half on day 20, interest on that half stops on day 20. Run the calculator once per tranche and add the results rather than applying the rate to the full amount for the whole period.

Keep the chasing polite and on record. Send a statement showing the interest figure, then a reminder, then a letter before action. Many suppliers calculate the interest, show it, and waive it once payment lands. That is a sound commercial choice. Adding months of interest for the first time when the relationship breaks down is much harder to defend.

How to read the result

The daily interest line is what each further day of delay costs the customer, and it is the number worth quoting in a reminder because it keeps growing. Days overdue counts from the day after the due date to the paid date, or to today if that field is blank. Interest accrued is the running total, and the total owed adds the principal, that interest and the fixed recovery charge. If the total looks small next to the invoice, that is normal: statutory interest is designed to compensate for the cost of money, not to punish. The fixed charge usually does more to cover the time you spent chasing.

Late payment interest calculator by days overdue

A 5,000 invoice charged simple interest at 8% a year, with no fixed recovery charge.

Interest accrued and total owed on a 5,000 invoice at 8% by days overdue

Related tools