Late payment interest
Interest on an overdue invoice is the balance times the annual rate times the days late, over a 365-day year. Dividing by 360 instead changes the answer by more than 1%.
How the interest is worked out
Apply the annual rate to the days the money has been late, out of a 365-day year. Interest starts the day after the due date, because an invoice due today isn't late yet.
| Simple | balance × rate ÷ 100 × days ÷ 365 |
|---|---|
| Compounded daily | balance × ((1 + rate ÷ 100 ÷ 365)days − 1) |
Say a 2,000 invoice is 60 days late at 8%. Simple interest is 26.30, about 0.44 a day. Compounded daily over the same 60 days it's 26.47, a difference of 17 cents for 2 months of compounding. Over 3 years the same rate and balance give about 480 simple and about 542 compounded, so the method matters more the longer a debt runs.
A 365-day year, not 360
Some banking conventions divide by 360, which makes the interest about 1.4% larger than the rate on the contract says. The calculator uses actual days over 365. That's how the UK government's own guidance on statutory interest works out a day's interest, and it's what a client reading the invoice will assume. I recommend sticking with 365 for that reason.
Interest is not a late fee
A late fee is fixed when it applies; interest keeps accruing. The terms get used interchangeably, but they work differently. 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.
| 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). Some US states protect freelancers instead, with damages for late payment rather than a rate of interest.
Look up the current statutory rate where you invoice. Those schemes usually set the rate as a central bank reference rate plus a fixed margin, so the number changes as the reference rate does. There's no rate table on the calculator or in this guide, because anything printed would be out of date within months. I'd find today's figure and type it into the calculator.Late payment laws by country gives the formula for the UK, EU countries and others, and links to the page that publishes each current rate.
Short version: interest is worked out by the day, as the balance times the annual rate times the days late, over a 365-day year. On 2,000 at 8%, 60 days late comes to 26.30. Dividing by 360 instead would overstate it by about 1.4%.
Last updated 22 September 2026