How to calculate late payment interest on overdue invoices

Last updated: 25 July 2026 · General information for UK businesses

Late payment interest is usually calculated using four pieces of information: the invoice amount, the annual interest rate, the number of days the invoice is overdue and whether fixed compensation should also be included.

The basic formula

The standard way to estimate simple late payment interest is:

This formula gives an estimate of the interest accrued for the number of days the invoice has remained unpaid after its due date.

Step 1: Identify the invoice amount

Start with the unpaid invoice amount. This should usually be the amount that remains outstanding, not necessarily the original invoice total if a partial payment has already been made.

For example, if the original invoice was £2,000 but the customer has already paid £500, the remaining overdue amount may be £1,500.

Step 2: Confirm the payment due date

Next, identify when the payment became due. This may be stated in the contract, purchase order, invoice terms or email agreement.

Common payment terms include:

• Payment due on receipt
• 7 days from invoice date
• 14 days from invoice date
• 30 days from invoice date
• End of month following invoice date

If no payment date was agreed, the late payment rules may provide a default position. Official UK guidance explains when a payment becomes late: GOV.UK: Late commercial payments, interest and debt recovery .

Step 3: Count the number of days overdue

The number of days overdue is the number of calendar days between the due date and the date you are calculating up to.

For example, if an invoice was due on 10 June and you calculate on 25 July, the invoice is 45 days overdue.

Step 4: Choose the correct annual interest rate

For UK commercial late payments, the statutory rate is commonly described as the Bank of England base rate plus 8%.

However, your contract may contain a different late payment interest clause. If your contract sets a specific rate, you should read it carefully and consider whether that contractual rate applies.

You can check the official Bank Rate here: Bank of England: Bank Rate .

Step 5: Convert annual interest into daily interest

Annual interest needs to be divided by 365 to estimate daily interest.

Step 6: Multiply by the number of days overdue

Once you know the daily interest, multiply it by the number of overdue days.

Full worked example

Here is a complete example using a £1,000 invoice, 45 days overdue and an annual rate of 11.75%.

The estimated interest accrued is therefore about £14.49.

Should fixed compensation be added?

In some UK commercial late payment situations, fixed compensation for debt recovery costs may also be relevant. This is separate from interest.

The commonly referenced compensation bands are:

• £40 for debts up to £999.99
• £70 for debts from £1,000 to £9,999.99
• £100 for debts of £10,000 or more

Using the example above, a £1,000 overdue invoice may fall into the £70 compensation band, depending on the circumstances.

Use a calculator to reduce errors

Manual calculations are useful for understanding the method, but a calculator can help reduce errors when dates, rates or invoice amounts change.

You can use our free UK late payment interest calculator to estimate:

• Days overdue
• Daily interest
• Total interest accrued
• Fixed compensation
• Estimated total amount now owed

Common calculation mistakes

When calculating late payment interest, watch out for these mistakes:

• Using the invoice date instead of the due date
• Forgetting to subtract partial payments
• Using an outdated Bank of England base rate
• Applying the statutory rate when a contract rate may apply
• Counting negative days when the invoice is not actually overdue
• Adding fixed compensation to a debt that does not qualify

Quick summary

To calculate late payment interest, multiply the unpaid invoice amount by the annual interest rate, divide by 365 and then multiply by the number of days overdue.

For UK commercial payments, remember to check whether statutory interest, contractual interest or fixed compensation is relevant before relying on the result.