What is Late Payment Interest?
Interest charged on overdue invoices, calculated as an annual percentage of the outstanding amount applied to the number of days past the due date.
What Is Late Payment Interest?
Late payment interest is the additional charge you can apply to invoices that remain unpaid after the agreed payment term. It compensates you for the financial cost of being paid late and incentivizes prompt payment.
Legal Framework
UK: Under the Late Payment of Commercial Debts (Interest) Act 1998, businesses can claim statutory interest of 8% above the Bank of England base rate on unpaid B2B invoices. In 2024, with the base rate at ~5.25%, this means a statutory rate of ~13.25%.
US: No single federal law governs late payment interest. Most states allow businesses to charge interest on overdue invoices if the rate is stated in the contract. Common practice is 1.5%/month (18% annually) or the maximum allowed by state law.
EU: Under the Late Payments Directive, businesses can charge interest of 8% above the ECB reference rate.
How to Charge Late Payment Interest
**Interest = Invoice Amount × (Annual Rate ÷ 365) × Days Overdue**
Example: $2,000 invoice, 18% annual rate, 45 days overdue:
$2,000 × (0.18 ÷ 365) × 45 = $44.38 interest
Prevention is Better Than Cure
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