Late Payment Interest (Daily) Formula
Learn how daily simple interest, total accrued interest and the total amount due are calculated for an overdue invoice.
This calculator estimates late payment interest by converting an annual rate into a daily simple-interest rate. The result helps show the cost of each additional overdue day and the estimated balance due at a chosen calculation date.
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Total late payment interest
Where:
Convert the annual percentage rate to a daily decimal rate, multiply it by the unpaid invoice balance, then multiply by the number of overdue days.
Variables Explained
| Variable | What It Means | Unit |
|---|---|---|
| invoiceAmount - Overdue invoice amount | The unpaid invoice balance before interest is added. | currency |
| annualInterestRate - Annual late payment interest rate | The annual rate that applies under the relevant contract, policy or rules. | percent |
| daysLate - Days payment is late | The number of calendar days from the due date to the payment date or calculation date. | days |
Step-by-Step Calculation
Convert the annual rate to a daily rate
The annual percentage rate is converted into a decimal daily rate using a 365-day year.
dailyInterestRate = annualInterestRate / 100 / 365
Calculate the daily interest charge
This is the simple interest that accrues for one overdue day.
dailyInterest = invoiceAmount * dailyInterestRate
Calculate interest for all overdue days
The daily charge is multiplied by the full number of days late.
totalInterest = dailyInterest * daysLate
Calculate the total amount due
The accrued interest is added to the original unpaid invoice balance.
totalAmountDue = invoiceAmount + totalInterest
Example: £5,000 invoice paid 30 days late
Convert the annual rate
8 / 100 / 365
0.000219178 daily rate
Calculate daily interest
5000 × 0.000219178
£1.09589 per day
Calculate total interest
1.09589 × 30
£32.8767
Calculate total amount due
5000 + 32.8767
£5,032.88
Final Result
Estimated daily interest: £1.10 per day. Estimated accrued interest: £32.88. Estimated total amount due: £5,032.88.
Assumptions
- ✓Interest is calculated as simple interest on the original overdue invoice amount.
- ✓The annual interest rate remains unchanged throughout the overdue period.
- ✓A 365-day year is used for the daily-rate conversion.
- ✓The invoice balance does not change because of part-payments, credits or adjustments.
- ✓The calculation covers interest only and excludes compensation, recovery costs, taxes and other fees.
Limitations
- !The applicable interest rate, start date and permitted charges can vary by contract, transaction and jurisdiction.
- !Some arrangements use a different day-count convention, such as 360 or 366 days.
- !Part-payments require separate calculations for each balance period.
- !Rounding practices may differ when interest is recorded, billed or paid.
- !This estimate is not legal, financial or tax advice.
Common Mistakes to Avoid
Entering 0.08 instead of 8 when the rate field expects a percentage.
Using the original invoice total after a partial payment has reduced the balance.
Counting from the invoice issue date rather than the relevant payment due date.
Including days before interest is permitted to start under the applicable terms.
Adding fixed fees or recovery costs to the interest result without checking whether they apply.
Related Formulas
Frequently Asked Questions
What is the daily late payment interest formula?
Daily interest equals the overdue invoice amount multiplied by the annual rate divided by 100 and then divided by 365.
How do I calculate total interest on an overdue invoice?
Multiply the daily interest charge by the number of overdue days. This calculator uses simple interest, so it does not charge interest on previously accrued interest.
Does the formula use simple or compound interest?
It uses simple interest on the original overdue invoice balance.
Why is the annual rate divided by 365?
Dividing by 365 converts an annual rate into a daily rate under the calculator's stated day-count assumption.
Does interest continue to accrue every day?
Under this estimate, the same daily amount accrues for each entered overdue day while the invoice balance remains unchanged.
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