Late Payment Interest Calculator
Free late payment interest calculator. Work out interest on an overdue invoice or debt by days and annual rate, simple or compounded.
What late payment interest is
When an invoice is paid late, many contracts and jurisdictions allow the supplier to charge interest on the overdue amount for each day it stays unpaid. This calculator works out that interest at an annual rate over a number of days, using either simple interest or daily compounding, and shows the new total owed.
How the calculator works
- Daily rate = annual rate ÷ 100 ÷ 365.
- Simple interest = amount × daily rate × days.
- Daily compounding = amount × ((1 + daily rate)days − 1), so each day’s interest itself starts earning interest.
- Total owed = the original amount plus the interest.
A worked example
$5,000 overdue by 90 days at an 8% annual rate:
| Method | Calculation | Interest | Total owed |
|---|---|---|---|
| Simple | 5,000 × (0.08 ÷ 365) × 90 | $98.63 | $5,098.63 |
| Daily compounding | 5,000 × ((1 + 0.000219)90 − 1) | $99.60 | $5,099.60 |
Over 90 days the difference between the two methods is under a dollar. Compounding only pulls clearly ahead over long periods or at high rates.
Statutory rates worth knowing
| Jurisdiction | Typical late-payment rate |
|---|---|
| UK | Bank of England base rate + 8% |
| EU (commercial) | ECB rate + 8% |
| Australia | Often the RBA cash rate + a margin, or a contract rate |
| US | Contract rate, subject to state usury caps |
Always check the applicable rate for your contract and country before invoicing interest, and make sure your terms allow it.
Common mistakes
- Charging interest with no contractual basis. Many businesses can only apply statutory interest if their terms or the law provide for it.
- Using the wrong day count. Commercial interest commonly uses a 365-day year; some markets use 360. The tool assumes 365.
- Compounding when the agreement says simple. Match the method your contract specifies, not the one that earns more.
- Forgetting to show the working. When you invoice interest, state the amount, rate, day count, and method so the client can verify it.
How to present the charge
An interest charge should never arrive as a surprise lump sum. Add it to the invoice as its own line with the working shown, for example: “Late payment interest: $5,000 at 8% per annum for 90 days (simple) — $98.63.” That gives the client everything needed to verify the figure and removes the most common reason a charge is disputed. If your terms allow a fixed administration fee on top, list that separately rather than folding it into the interest.
Frequently asked questions
Can I charge interest on an overdue invoice?
Only if your contract or the applicable law allows it. If your terms state a rate and a start date, you can normally apply it; otherwise check the statutory position in your jurisdiction or seek advice.
Do I charge interest on the tax portion?
Usually interest is calculated on the total amount outstanding, which can include tax already charged. If in doubt, work it out on the net amount and keep the treatment consistent.
Should I use simple or compounding interest?
Use whatever the agreement says. Simple is the common default for late-payment clauses; daily compounding is more aggressive and needs a clear contractual basis.
When does interest start accruing?
Normally from the day after the due date, not from the invoice date. If your terms specify a grace period, the clock starts when that expires. Being precise about the start date avoids inflating the charge and keeps the calculation defensible if the client pushes back. Note too that some jurisdictions require a written demand before statutory interest can be claimed, so check the rule that applies to your contract.
A clear invoice with a stated due date is the best way to avoid the situation. The invoice generator lets you set payment terms, and the simple loan calculator models everyday interest the other way round — what borrowing costs you.