Accountants Late Payment Interest (Hourly) Formula
Learn how simple late payment interest is calculated on an overdue accountancy invoice using an annual rate and exact overdue hours.
This calculator estimates simple interest on an unpaid accountancy invoice. It converts the annual percentage rate into an hourly rate, applies that rate to the outstanding balance for the full overdue period, and adds the interest to the invoice amount.
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Late Payment Interest
Where:
Multiply the unpaid invoice balance by the annual rate converted to an hourly decimal rate, then multiply by every overdue hour.
Variables Explained
| Variable | What It Means | Unit |
|---|---|---|
| I - Late payment interest | Estimated simple interest accrued during the overdue period. | currency |
| A - Outstanding invoice amount | The unpaid invoice balance used as the interest base. | currency |
| R - Annual interest rate | The applicable annual simple interest rate entered as a percentage. | percent |
| D - Complete overdue days | The number of full days the invoice has been overdue. | days |
| H - Additional overdue hours | Extra overdue hours beyond the complete days. | hours |
Step-by-Step Calculation
Convert days and hours into total overdue hours
This expresses the entire late period in hours.
totalOverdueHours = (overdueDays * 24) + additionalHours
Convert the annual percentage rate to a decimal
A percentage such as 8 becomes the decimal 0.08.
annualDecimalRate = annualInterestRate / 100
Calculate the hourly rate
The calculator uses a 365-day year and 24 hours per day.
hourlyInterestRate = annualDecimalRate / 365 / 24
Calculate simple late payment interest
Interest is calculated on the outstanding balance only.
latePaymentInterest = invoiceAmount * hourlyInterestRate * totalOverdueHours
Calculate the estimated total due
This adds the estimated interest to the unpaid invoice balance.
totalAmountDue = invoiceAmount + latePaymentInterest
Example: £1,000 invoice overdue by 30 days
Total overdue hours
(30 * 24) + 0
720 hours
Annual rate as a decimal
8 / 100
0.08
Hourly interest rate
0.08 / 365 / 24
0.0000091324
Late payment interest
1000 * 0.0000091324 * 720
£6.58
Estimated total amount due
1000 + 6.58
£1,006.58
Final Result
Estimated late payment interest: £6.58. Estimated total amount due: £1,006.58.
Assumptions
- ✓Interest is simple, not compounded.
- ✓The annual rate is divided by 365 days and 24 hours per day.
- ✓The same outstanding balance applies throughout the overdue period.
- ✓Only interest is included; fixed compensation, recovery costs, taxes, and court costs are excluded.
Limitations
- !The applicable rate, start time, and day-count convention may differ under a contract or local rules.
- !A partial payment or credit note can change the balance on which interest should be calculated.
- !Rounding practices may differ from the calculator's displayed result.
- !This estimate does not determine whether interest is legally recoverable.
Common Mistakes to Avoid
Entering an annual rate as a decimal, such as 0.08, instead of 8%.
Adding total hours as additional hours instead of entering only the hours beyond complete days.
Using the original invoice total after a partial payment has reduced the balance.
Starting the overdue period from the invoice date rather than the applicable due date.
Adding fixed fees or collection charges to an interest-only result.
Related Formulas
Frequently Asked Questions
What is the hourly late payment interest formula?
The formula is outstanding balance multiplied by annual rate divided by 100, 365, and 24, then multiplied by total overdue hours.
Why is the annual rate divided by 365 and 24?
That converts an annual simple rate into an hourly rate using a 365-day year.
Does the formula compound interest?
No. It calculates simple interest only on the unpaid invoice balance.
How are additional overdue hours used?
They are added to complete overdue days after those days are converted to hours.
Can the formula be used after a partial payment?
Yes, but use the remaining balance and calculate separate periods if the balance changed.
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