Late payment fees

How a late fee is worked out

Count the days from the due date to the day you are calculating through, take off any grace period, and if anything is left the fee applies. A one-off percentage is the balance times the rate. A flat fee is the flat fee. A monthly charge is the rate times the number of months overdue.

On 2,000 at 1.5 per cent a month, three months overdue: 2,000 × 1.5% × 3 = 90. The same invoice on a one-off 5 per cent is 100, and on a flat 40 it is 40 — which is why the calculator shows all three beside its answer.

The calculator's monthly charge is not compounded

Every month charges the rate on the original balance, never on the balance with last month's fee already added. Three months at 1.5 per cent on 2,000 is 90, not 91.35. Compounding a late fee is a different agreement and usually says so in different words, and a calculator that compounded without being asked would overstate what you are owed — which is the direction that gets the whole invoice argued about instead of paid.

Months, not 30-day blocks

Terms say "per month", so months are what the calculator counts: 15 January to 15 February is one month whatever February's length. An invoice due on the 31st is treated as a full month on the 28th or 29th of February, because that is as far as the month goes — counting it as nothing would hand a free period to every invoice dated at a month end.

On the calculator, Each month started counts a part-month as a whole one, which is what "per month or part thereof" means. Only full months waits for the month to complete. The difference on a single invoice can be a whole period, so it is worth knowing which one your terms say before the conversation, not during it.

A grace period is not the same as a longer term

A grace period delays the fee without moving the due date. The invoice is still late from the due date — which matters for a payment history, for a statement, and for what you say in the reminder — but nothing is charged until the grace has run out. Seven days of grace on an invoice due on the 1st means the fee starts on the 9th: the 8th is the seventh and last day of grace, and being seven days late is not yet more than seven days late.

Late fee or interest?

They are different instruments that often get the same name. A late fee is a charge for being late, usually flat or a single percentage. Interest accrues on the outstanding amount for as long as it is outstanding, and in many countries a statutory rate applies to commercial invoices whether or not the contract mentions one. The monthly method described here behaves like simple interest, but it is not a statement about any statutory rate — that is a number you look up where you invoice.