Question 1

How is late payment interest calculated?

Accepted Answer

Late payment interest is usually calculated as simple interest: Interest = Invoice Amount × (Annual Rate ÷ 365) × Days Overdue. For example, a $5,000 invoice 30 days overdue at 12% annual interest accrues $5,000 × (0.12 ÷ 365) × 30 = $49.32 in interest. Some contracts compound the interest monthly; this calculator uses simple interest by default but offers a compound option.

Question 2

What annual interest rate can I charge on overdue invoices?

Accepted Answer

The rate depends on your contract and local law. Common practice: 1–2% per month (12–24% annual). Many jurisdictions set a statutory rate for unpaid commercial invoices (often 1% above the central bank rate, e.g., the EU Late Payment Directive allows at least 8% above the ECB rate for B2B invoices). Always state the rate in your payment terms; check your local usury cap before charging high rates.

Question 3

What is a typical late payment fee?

Accepted Answer

Two common structures: (1) a flat fee per invoice (often $25–75 for individuals, $50–150 for businesses), or (2) interest on the overdue balance (1–2% per month is typical). Many businesses combine both — a flat admin fee plus ongoing monthly interest. State your policy clearly on every invoice: '2% per month (24% annual) after the due date, plus a $50 admin fee.'

Question 4

When does an invoice become overdue?

Accepted Answer

An invoice becomes overdue the day after its due date. If your invoice is 'Net 30' issued on July 1, the due date is July 31 and the invoice becomes overdue on August 1. A grace period of 3–10 days is common in the contract; interest usually starts accruing the day after the grace period ends, not the original due date.

Question 5

Can I charge compound interest on overdue invoices?

Accepted Answer

It depends on your contract and local law. Compound interest (interest on interest) is common in lending but less so for trade invoices, where simple interest is the default. If your contract specifies compound interest, use the compound option in this calculator; otherwise simple interest is the safer, more enforceable choice. Many courts will only enforce compound interest if it was explicitly agreed in writing.

Question 6

Should I waive the late fee for a long-standing client?

Accepted Answer

For first-time late payers or long-standing clients, a one-time waiver often preserves the relationship better than enforcing the fee. The best practice is to enforce consistently and waive selectively: state the fee on every invoice, send the first reminder at the due date, and offer a one-time courtesy waiver for clients with a clean payment history. Track which clients are chronically late — those should always be charged.

Question 7

How do I add late payment terms to my invoices?

Accepted Answer

Add a clear line on every invoice, e.g.: 'Accounts overdue beyond 30 days will be charged 1.5% per month (18% annual) plus a $50 administration fee.' Put it near the payment terms, not buried in fine print. Enforce it consistently — selectively enforcing late fees weakens your legal standing. Pair it with automated reminders sent on the due date, 7 days late, and 14 days late.

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