Late payment interest
Interest on an overdue invoice is worked out by the day, and two conventions about what a year is will change the answer by more than a per cent.
How the interest is worked out
An annual rate, over the days the money has actually been late, out of a 365-day year. Interest starts the day after the due date: being due today is not being late.
| Simple | balance × rate ÷ 100 × days ÷ 365 |
|---|---|
| Compounded daily | balance × ((1 + rate ÷ 100 ÷ 365)days − 1) |
On 2,000 at 8 per cent, sixty days late, simple interest is 26.30 — about 0.44 a day. Compounded daily over the same sixty days it is 26.47, which is seventeen cents for two months of compounding. Over three years the same rate and balance give about 480 simple and about 543 compounded, and that is where the choice starts to matter.
A 365-day year, not 360
Some banking conventions divide by 360, which quietly makes the interest about 1.4 per cent larger than the rate on the contract says. The calculator uses actual days over 365, which is how the UK government's own guidance on statutory interest works out a day's interest, and what anybody reading the invoice will assume.
Interest is not a late fee
They get used interchangeably and they are different instruments. A late fee is a charge for being late — a flat amount or a single percentage, fixed the moment it applies. Interest accrues for as long as the debt is outstanding, so it is still growing while you are reading this.
| Late fee | Charged once, or once a month. Does not depend on the days |
|---|---|
| Interest | Accrues daily on the balance, for as long as it is unpaid |
Plenty of agreements allow both, and plenty of jurisdictions allow one and not the other. For a flat or one-off charge, the late payment fee calculator does that arithmetic.
Where the rate comes from
Either from your contract, or from statute. Several jurisdictions give a supplier a statutory right to interest on a commercial debt whether or not the contract mentions one — the UK under the Late Payment of Commercial Debts (Interest) Act 1998, the EU under its late payment directive (2011/7/EU), and many US states under their own rules.
Those schemes usually set the rate as a central bank reference rate plus a fixed margin, which means the number changes as the reference rate does. That is why there is no rate table on the calculator or in this guide: anything printed would be out of date within months, and stale figures about money somebody owes you are worse than none. Look up the current one where you invoice and type it into the calculator.
Short version: Interest is worked out by the day: the balance times the annual rate times the days late, over a 365-day year. On 2,000 at 8 per cent, sixty days late comes to 26.30. Dividing by 360 instead would overstate it by about 1.4 per cent.
Last updated 22 September 2026