Can you charge interest on a late invoice?
In most countries, yes. If a client misses the due date on a commercial invoice, the law usually entitles you to charge interest on the overdue amount. This is a statutory right, set by legislation rather than a penalty you make up. Used well, it helps you recover what you are owed and discourages the next late payment.
Most commercial economies have passed legislation specifically to protect suppliers from slow-paying customers, so understanding how it works gives you a legitimate tool to recover what you are owed.
What is statutory late payment interest?
Statutory late payment interest is interest that accrues automatically on an overdue commercial invoice, at a rate set by law. You do not need a court order to be entitled to it, and in most jurisdictions you do not need to have agreed to it in your contract in advance; the law imposes it by default on qualifying business-to-business transactions.
The rate is typically expressed as a percentage above a reference rate, for example, the Bank of England base rate plus 8% in the UK, or the ECB reference rate plus 8% for B2B transactions in the EU. These rates are deliberately set high to give creditors a meaningful remedy and to make slow payment genuinely costly for debtors.
Why does it exist?
Late payment hits small suppliers hardest. They get paid later than large firms, and slow payment is a leading cause of cash-flow crises. The legislation rebalances that: it hands smaller creditors a legal right they can use without going to court, and it puts a real cost on late payers, enough to change how quickly they pay.
Late payment is one of the most persistent problems facing freelancers and small businesses. Research consistently shows that smaller suppliers are paid later than large ones, and that late payment is a leading cause of cash-flow crises and insolvencies. Late payment legislation exists to rebalance this power dynamic: it gives smaller creditors a legal right that they can invoke without needing to sue, and it imposes a financial cost on late payers that is large enough to change behaviour.
The EU Late Payment Directive, the UK Late Payment of Commercial Debts Act, and equivalent legislation in other jurisdictions all share the same goal: make it financially rational to pay on time.
How do you calculate late payment interest?
Late payment interest uses simple interest, not compound. Multiply the invoice amount by the annual statutory rate, then by the days overdue divided by 365. A 5,000 pound invoice that is 60 days overdue at the UK rate of 13.25 percent accrues about 108.90 pounds. The calculator does this arithmetic for you and updates as you type.
The formula is:
Interest = Invoice amount × (Annual rate / 100) × (Days overdue / 365)
The "days overdue" figure is derived from the invoice date you enter and today's date. You do not need to count days manually. The clock typically starts from the agreed payment date in the contract, or 30 days after delivery of the invoice if no date was agreed.
When is it worth invoking?
The legal right exists whether you use it or not. Most freelancers do not claim it, partly because they do not know they can, and partly because they worry it will damage the client relationship. A few things to consider:
- With repeat clients you want to keep: a polite reminder that references the statutory rate (without actually adding it to the invoice) is often enough to prompt payment. The mention of the legislation signals you know your rights.
- With clients who are persistently slow: adding statutory interest to subsequent invoices changes the economics of delay. If they pay 60 days late on a £10,000 invoice, that is an extra £219 they owe you. Over several invoices, this becomes meaningful.
- When pursuing a debt through the courts: statutory interest strengthens your claim and is typically awarded alongside the principal debt.
- As a deterrent in new contracts: including a clause that references the applicable legislation in your payment terms sets expectations before any dispute arises.
What are the late payment rules by country?
Rules vary widely. The UK and the EU set high statutory rates, both running 8 percentage points above a central bank reference rate. Australia, Canada, and the United States lack a single federal rate, so your entitlement depends on the contract and the state or province. India gives registered MSME suppliers a strong statutory right. Details follow.
| Country or region | Statutory basis | Statutory or default rate | Notes |
|---|---|---|---|
| United Kingdom | Late Payment of Commercial Debts (Interest) Act 1998 | 8% above the Bank of England base rate, giving 13.25% at a 5.25% base | Also allows a fixed debt recovery charge: £40 under £1,000, £70 from £1,000 to £10,000, £100 above |
| Germany and the EU | EU Late Payment Directive 2011/7/EU, implemented in Germany through §§ 288, 247 BGB | 8 percentage points above the ECB reference rate, giving 12% at a 4% reference rate | The ECB reviews and publishes the reference rate twice a year |
| Australia | No single federal statute; the contract or state-level legislation | 10% per annum, used as a commercial default | Your entitlement depends on the contract, the state, and the transaction, so check your agreement first |
| India | MSMED Act 2006, for registered MSME suppliers | Three times the Reserve Bank of India bank rate, broadly tracking 18% per annum | MSME registration is required to invoke the Act; other contracts depend on the agreement or a court |
| Canada | No single federal rate; provincial legislation and contract terms | 5% per annum, used as a conservative estimate | British Columbia, Ontario, and Quebec each set their own rules; check the provincial Court Order Interest Act |
| United States | No federal rate for general commercial debts; state statutes and contract terms | State rates from 6% (for example, New York) up to 18% per annum | Prompt Payment Acts cover federal government contracts, not private B2B; check your state pre-judgment interest statute |
What should you do before sending a late payment demand?
Before you send a demand, confirm the invoice is genuinely overdue against the agreed payment date, not just the invoice date. Verify the current statutory rate for your country, since base rates shift. Send written notice that cites the relevant law and states the interest due, then keep records of the invoice, terms, and every reminder.
- Confirm the invoice is genuinely overdue (check the agreed payment date, not just the invoice date).
- Verify the current statutory rate for your country. Base rates change. The figures in this calculator are illustrative fallbacks, not live rates.
- Send a written notice that references the applicable legislation and specifies the interest amount. This creates a paper trail if further action becomes necessary.
- Keep a record of the invoice, the payment terms, any previous reminders, and the demand itself.
- If the debt remains unpaid after a reasonable period, consider using a debt recovery service, mediation, or small claims court depending on the amount and jurisdiction.
Disclaimer: The rates and rules described above are provided for general information only and do not constitute legal advice. Statutory rates change, and the applicable rules depend on the specific facts of your situation. Consult a solicitor, lawyer, or legal adviser before taking formal recovery action.