How it’s calculated
Late payment interest is normally simple interest: it accrues each day on the unpaid invoice amount and is not added to the balance for further interest. A monthly rate is turned into an annual rate (× 12) and spread over a 365-day year.
Example: a 5,000 invoice paid 45 days late at 1.5% a month (18% a year) accrues 5,000 × 0.18 × 45 ÷ 365 = 110.96 interest, 2.47 per day.
You can only charge interest or fees that your contract or local law allows. Many places cap rates or set a statutory rate (for example, U.S. federal agencies pay Prompt Payment Act interest at a rate published by Treasury).
Frequently asked questions
Is 1.5% per month the same as 18% per year?
As simple interest, yes: 1.5 × 12 = 18. If it were compounded monthly the effective annual rate would be about 19.56%.
Can I charge any late fee I like?
No. Late fees and interest generally must be agreed in your terms, and many jurisdictions limit them. Check your contract and local rules before invoicing interest.
Some contracts use a 360-day year. Does that matter?
Slightly. Dividing by 360 instead of 365 raises the interest by about 1.4%. This calculator uses 365 days.
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Sources
- Contemporary Mathematics, 6.3 Simple Interest — OpenStax
- Prompt Payment (interest on late payments by federal agencies) — U.S. Department of the Treasury, Bureau of the Fiscal Service
Formulas are taken from the free public references above. Results are provided “as is” for informational and educational purposes only. See our disclaimer.
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