How to Charge Interest on a Late Invoice

⚠️ The clause has to exist first

Interest on an overdue invoice is a contractual term, not something you can add to a reminder after the fact.

It needs to be in what the client accepted — engagement letter, purchase order, signed quote, or standard terms referenced on the invoice itself.

A rate appearing for the first time on a chasing email is generally unenforceable. Worse, it makes an otherwise reasonable request look opportunistic, which costs more than the interest would have earned.

Some jurisdictions grant a statutory right to interest regardless, and several cap what can be charged. Which applies depends on where you and the client are, and whether the debt is business-to-business.

Convert the rate before you set it

Terms are written monthly because the monthly figure sounds small:

Written as	Actually is	Compounded
1.5% a month	18% a year	~19.56%
2% a month	24% a year	~26.82%

Worth doing both for yourself — so the figure is defensible if challenged, and so you know what you're actually asking for.

What it comes to

A $5,000 invoice, 45 days past due, at 18%:

• Interest accrued: $110.96
• Accruing at: $2.47 a day
• Another 30 days would add: $73.97

The daily figure is the most persuasive number on the page. "This invoice is accruing $2.47 a day" makes the cost of delay concrete in a way a percentage never does — it attaches a running meter to an abstract obligation.

It's useful for you too. Multiplied across several overdue invoices, it shows what your late-payment problem actually costs, which is often the figure that justifies spending time on collections or tightening the terms.

Two details that are easy to get wrong

Late starts at the due date, not the invoice date. Thirty-day terms mean the client has thirty days — an invoice issued on the 1st is one day late on the 31st, not thirty-one days late. Overstating it undermines an otherwise correct claim at exactly the moment you need it to look careful.

The day-count basis. Dividing by 360 instead of 365 produces about 1.4% more interest. Match whatever your contract specifies rather than picking the larger one; if it's silent, 365 is safer because it's more conservative and easier to defend.

Simple, not compound

The tool calculates interest on the original invoice for the days it's late. The interest doesn't itself earn interest.

That's the usual arrangement for trade invoices and the more conservative figure — which is the right default when you may have to justify it. If your terms compound monthly, the real total runs slightly higher, and the tool shows the compounded equivalent so you can see the size of that gap.

⚠️ The arithmetic is the easy part

Getting paid is not.

In practice a late fee works better as a deterrent written into terms than as a sum you collect. Pressing it hard can cost a client relationship worth considerably more than the invoice.

The realistic sequence is a polite reminder, then a firmer one citing the clause, then a formal demand — with the fee as a lever rather than a target.

And if you decide to waive it, waive it explicitly. Telling a client you're not charging the interest they owe under clause four is worth far more than never mentioning it — because it establishes that the clause is real, which is what makes it work next time.

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General information, not legal or financial advice. Debt recovery, statutory interest rights and what's enforceable all vary by jurisdiction — for a significant sum, a qualified adviser is the right call.