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Charging Interest on Late Invoices: How to Calculate It

Late payment interest is usually simple daily interest on the unpaid amount. Here is the formula, an example, and what to check before you charge it.

By Muhammad Ahmad. Published . 2 min read.

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Late payments hurt small businesses and freelancers more than anyone, because a single unpaid invoice can be a big share of the month's income. Charging interest will not fix a bad client on its own, but stating it clearly, and knowing exactly what is owed, often speeds payment up.

The formula

Most late payment interest is simple interest: charged on the original amount only, not on interest already added. Work out the interest for one day, then multiply by the number of days late.

A $5,000 invoice, 45 days late, at 8% a year

  1. Interest per day

    $5,000.00 × 8% ÷ 365equals$1.10

  2. Interest owed

    $1.0959 × 45 daysequals$49.32

  3. Total now due

    $5,000.00 + $49.32equals$5,049.32

After 30 days the same invoice would carry $32.88 of interest. Count the days from the day after the due date.

Can you charge it?

There are two usual sources of a right to charge interest:

  • Your contract or terms: if they state a late payment rate and the client agreed to them, that rate normally applies.
  • The law where you work: some places give businesses a statutory right to interest on late business payments. For example, UK law lets businesses charge 8 percentage points above the Bank of England base rate, plus fixed compensation of £40, £70 or £100 per invoice depending on its size. EU rules follow a similar approach: a reference rate plus at least 8 points, and at least €40 per invoice. These rules cover business-to-business debts, not money owed by consumers.

Rules differ between countries, and statutory rates that are tied to a central bank rate change over time. Check an official source, such as your government's business guidance, for the current figures before you charge.

Getting paid on time in the first place

  • Print the payment terms and late payment interest rate on every invoice.
  • Send a friendly reminder a few days before the due date.
  • Take deposits on larger projects.
  • Make paying easy, with every payment detail on the invoice.

Tip: When you chase a late invoice, state the exact interest owed and the daily amount that keeps adding up. A precise figure is taken more seriously than a vague warning.

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