Business studies
Late payment interest on an overdue invoice
Enter the amount owed, the annual rate, the due date and the payment date: get the days overdue, the interest accrued and the total to pay.
When and how late payment interest is worked out
Late payment interest compensates the creditor for the delay: it accrues day by day on the unpaid amount, from the day after the due date until payment. It is simple interest: amount × rate × days ÷ 365.
Between businesses, many countries set a statutory rate. In the United Kingdom the Late Payment of Commercial Debts Act allows 8% above the Bank of England base rate; the EU late payment directive sets at least 8 points above the central bank rate. Between private parties, the contract or the court rate applies.
Example: an invoice of 5,000 due on 31 January and paid on 30 June is 150 days late; at 10% a year the interest is 205.48. Many rules also allow a fixed sum for recovery costs on top.
Common mistakes
- Counting the due date itself: interest starts the day after.
- Using a consumer rate in a business-to-business debt, where the statutory rate is usually much higher.
- Compounding the interest, charging interest on interest already accrued: statutory interest is simple.
Frequently asked questions
What rate should I use?
The one in the contract if there is one; otherwise the statutory rate for your country and type of debt, which is often published by the government or the central bank each half year.
Do I need to send a reminder first?
For business debts under statutory schemes usually not: interest runs from the due date. For other debts a written demand is often required before interest can be claimed.
What if the rate changes during the delay?
Work out each period with its own rate and add the results. This calculator uses a single rate, so for long delays run it once per period.
How this calculation works
Days overdue = payment date − due date. Interest = amount × rate ÷ 100 × days ÷ 365 (or 360). Total owed = amount + interest. Interest per day = amount × rate ÷ 100 ÷ 365.
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Simple interest
Solve for capital, rate, periods or final amount when interest is not capitalised.