Late Payment Interest Calculator

Interest Calculation

Enter invoice details to calculate late payment interest

Invoice Details

$

Interest Rate

%

Common rates: 1-2% per month (12-24% annually)

Quick select:

Compounding Method

How to Calculate Late Payment Interest

1

Enter the Invoice Amount

Start by entering the original invoice amount that was due. This amount should be the full unpaid balance before any late fees or interest are applied.

The calculator uses this amount as the principal for all interest calculations.

2

Set the Dates

Enter the original due date and the actual payment date, or the date you expect payment.

The calculator uses the difference between these two dates to determine how many days the invoice is overdue.

3

Choose an Interest Rate

Select or enter the annual interest rate you want to apply to late payments. Common business rates range from 12% to 24% annually, which equals 1–2% per month.

Use a rate that aligns with your invoice terms and local regulations.

4

Select a Compounding Method

Choose how interest should be calculated. Simple interest is the most common option for invoices and applies interest only to the original amount owed.

Daily or monthly compounding increases the total interest over time and is typically used only if clearly stated in your payment terms.

Frequently Asked Questions

What interest rate should I charge for late payments?
Common late payment interest rates range from 1–2% per month, which equals 12–24% annually. Many small businesses choose 1.5% per month (18% annually) as a reasonable middle ground that discourages late payments without appearing excessive. Before setting a rate, check local laws to confirm maximum allowable interest and make sure the rate is clearly stated in your invoice terms or contract. Consistency is important—apply the same rate to all clients to avoid disputes.
What's the difference between simple and compound interest?
Simple interest is calculated only on the original invoice amount, regardless of how long the payment is overdue. This is the most common method for invoices and is easier for clients to understand. Compound interest is calculated on the invoice amount plus any accumulated interest, which causes the total owed to grow faster over time. While this can be used, it should only be applied if explicitly stated in your payment terms, as it can lead to confusion or disputes.
Can I legally charge interest on late payments?
In most jurisdictions, yes, as long as the interest rate and terms are disclosed before the service is provided. You should include them in your contract, agreement, or invoice payment terms. However, legal limits vary by country, state, or region, so it's important to check local usury or commercial interest laws. Charging interest without prior notice may make it unenforceable, even if the rate itself is reasonable.
Is this late payment interest calculator free?
Yes. This late payment interest calculator is completely free to use with no limits. You can calculate interest for as many invoices as you need without creating an account or paying anything.
How do I add late payment terms to my invoices?
Add a professional statement to your invoice payment terms, such as: "Late payments are subject to interest of 1.5% per month (18% annually) on outstanding balances." This text should appear on every invoice and, ideally, in your service agreement as well. With invoicing tools like Invoicer.ai, you can save default payment terms so they automatically appear on all invoices.
Do I have to charge late payment interest?
No. Charging late payment interest is optional. Some businesses use it strictly as a deterrent and waive it for first-time or long-term clients. Others apply it consistently to encourage timely payment. Having the terms in place gives you leverage, even if you choose not to enforce them every time.
Should I use simple or compound interest for invoices?
For most freelancers and small businesses, simple interest is the safest and most widely accepted option. It's easier to explain, easier to calculate, and less likely to cause client disputes. Compound interest should only be used if your contracts clearly allow it and your clients understand how it works.
Can I calculate interest for partially paid invoices?
Yes. If a client has made a partial payment, enter the remaining unpaid balance into the calculator. Interest should generally be applied only to the outstanding amount, not the original invoice total.
When does late payment interest usually start accruing?
Late payment interest usually begins accruing the day after the invoice due date, unless your payment terms specify otherwise. Some businesses allow a short grace period, such as 5–10 days, before applying interest. If you use a grace period, it should be clearly stated in your terms.
Should I show late payment interest as a separate line item?
Yes. Listing late payment interest as a separate line item improves transparency and reduces confusion. Clients can clearly see how the amount was calculated and why it was added, which helps avoid disputes and speeds up resolution.