About this tool

The Overdue Payment Interest Calculator computes the interest owed on a past-due invoice given the principal, the agreed (or statutory) annual rate, the number of days the payment has been outstanding, and whether interest compounds daily or accrues simply. It is built for the small business owner, freelancer, or accounts-receivable clerk who needs a defensible number to put on a follow-up invoice or collections letter — not a rough mental estimate. The math is straightforward; the part that catches people is choosing the right rate and the right method, both of which depend on the contract and the jurisdiction.

Three things determine what interest a creditor can legally charge on an overdue payment. First, the contract itself: if the original invoice or master services agreement specifies a late-payment rate ("1.5% per month" or "the lesser of 12% APR or the maximum permitted by law"), that rate controls. Second, the state's statutory rate when the contract is silent: most states default to 6–10% simple interest on commercial invoices, but the range runs from 5% (e.g., Kansas) to 18% (e.g., Wisconsin on judgments). Third, the federal Prompt Payment Act for federal contractors, which sets a floating rate published twice yearly by the Treasury (typically 4–6% in low-rate environments, currently higher).

Daily compounding versus simple interest is the other lever. Simple interest is principal × rate × time — easy to compute, easy to explain. Daily compounding adds the day's interest to the principal each day, so the next day's interest is computed on the slightly higher balance. Over 30 days at 12% annual rate, the difference is roughly 0.5%. Over 180 days the difference is closer to 3%. Most B2B contracts use simple interest. Credit card terms and a few aggressive late-fee clauses use compound. Use what the contract specifies; absent contract language, simple interest is the safer choice — it's harder for a customer's attorney to argue you computed it wrong.

The limitation worth naming: this tool computes interest, not total recovery. Late fees (flat dollar amounts), collection costs, attorney's fees, and court costs are separate line items that may or may not be recoverable depending on your contract and your state. For invoices over $5,000 or accounts 90+ days past due, a brief conversation with a collections attorney is usually worth the call before you send the demand letter.

How it works

Enter the principal — the unpaid invoice amount. Use the original invoice total, not the balance after partial payments. If partial payments have been applied, the calculator will undercount; for partial-payment scenarios you need a multi-period calculation (each payment resets the principal for subsequent days).
Set the annual interest rate. If your contract specifies a monthly rate ("1.5% per month"), multiply by 12 to get the annual equivalent (18% in that example). If the contract is silent, use your state's statutory rate. If you're unsure, start with 8% — that's in the middle of most state ranges and is rarely challenged as unreasonable.
Enter the number of days overdue. Count from the day after the invoice due date through today (or through the date you expect payment). Most contracts include a grace period — usually 10 or 30 days — before interest accrues; do not include grace-period days. If the contract is silent, day 1 of interest is the day after the due date.
Choose the interest method. Pick simple if the contract is silent or specifies simple. Pick daily compound only if the contract explicitly allows it. The tool will show both numbers so you can see the difference.
Generate the preview. The free preview shows the interest accrued, the total now owed, and the effective annual rate. The paid output produces a printable statement with the day-by-day interest accrual, suitable for attachment to a follow-up invoice or pre-litigation demand letter.
Document the calculation. Keep a record of which rate you used, why (contract clause or statute), and the date range. If the matter goes to small claims or collections, the judge will ask for this breakdown.

Frequently asked questions

What interest rate can I legally charge on a late invoice?

If your written contract specifies a rate, charge that rate — up to the state's usury cap (typically 12–24% for commercial transactions). If your contract is silent, you can charge the state's statutory pre-judgment interest rate, which is 6% in California, 9% in New York, 10% in Texas, and ranges from 5% to 12% across other states. For federal government contracts, the Prompt Payment Act rate applies and is published by the Treasury at fiscal.treasury.gov. Charging a rate higher than what the contract or statute permits is unenforceable and risks an unfair-collection-practices complaint.

When does interest start accruing — invoice date or due date?

Interest accrues from the day after the invoice's due date, not the invoice issuance date. The standard sequence is: invoice issued day 0, payment due day 30 (net-30 terms), grace period ends day 40 (if your contract allows a 10-day grace), interest begins day 41. If your contract does not include a grace period, interest begins day 31. The IRS and most courts use the day-after-due-date convention. Be consistent across customers; charging interest from invoice date for one customer and from due date for another is the kind of detail that surfaces in collections disputes.

Can I charge a late fee AND interest?

Yes, in most jurisdictions, but only if the contract specifies both. A "late fee" is typically a flat dollar charge (e.g., $25) or a percentage of the overdue amount (e.g., 5%) levied as a one-time penalty. "Interest" accrues over time. Many contracts use one or the other; sophisticated contracts use both — a $25 late fee on day 31 plus 1.5% monthly interest thereafter. Charging both without explicit contract language is risky and may be reduced or eliminated if challenged. State unfair-trade-practice laws also limit how aggressive late fees can be: California, for example, caps late fees on residential rent at the actual cost of collection plus reasonable damages.

How does this differ for B2B versus B2C transactions?

B2B (business-to-business) transactions enjoy substantially more flexibility on late-payment terms. Commercial parties can agree to rates that would be illegal in a consumer context — 1.5% per month (18% annualized) is standard in commercial accounts receivable and rarely challenged. B2C (business-to-consumer) is heavily regulated under state and federal consumer-protection law. The Truth in Lending Act, the Fair Debt Collection Practices Act, and state usury statutes all apply. For consumer invoices, stick to the state's statutory rate unless you have a clearly-disclosed contract clause and have followed Truth in Lending disclosure rules.

What if the customer disputes the interest charge?

Customers regularly push back on interest, especially when they're already overdue. The defensible position is: send a written breakdown showing the contract clause or statute that authorizes the rate, the day count, and the math. Offer to waive interest if payment of the principal arrives within 7 days. If the customer claims the invoice itself was wrong, separate the dispute: ask them to pay the undisputed portion immediately and continue accruing interest only on the disputed amount. If you cannot reach agreement, the next step is a demand letter — at that point, the interest line is one of several leverage points, not the main fight.

Does interest stop accruing if the customer files for bankruptcy?

Yes. Once a debtor files for bankruptcy, the "automatic stay" halts all collection activity including interest accrual, with very limited exceptions. The unpaid invoice becomes a claim in the bankruptcy proceeding. Pre-petition interest (interest that accrued before the filing date) is part of the claim; post-petition interest generally is not, unless the claim is secured and over-collateralized. If you receive notice of a bankruptcy filing, stop accruing interest on that customer's accounts and consult a bankruptcy attorney within 30 days — there are deadlines for filing proof of claim that vary by case type.

Current landscape

The "overdue payment interest calculator" search returns a dozen sites that all do the same thing: principal × rate × time / 365. The math is trivial. What none of them surface is the question that actually matters — whether the rate you've chosen is enforceable and the date you've chosen as day-zero is defensible. We've seen freelancers send collection notices with 24% monthly interest computed on the day of the invoice; that letter does nothing except make the customer call an attorney. The legal-tech market sells subscription products in the $50–$300/month range for accounts-receivable automation, but those are overkill for the sole proprietor sending three follow-up invoices a month. This tool sits in the middle: real math, in 10 seconds, with the rate-selection guidance the freelance sites omit.

One regional note worth flagging: the European Union's Late Payment Directive (2011/7/EU) sets a default statutory rate of 8 percentage points above the European Central Bank reference rate for commercial transactions, automatic, with no grace period beyond contract terms. UK businesses operate under the Late Payment of Commercial Debts (Interest) Act 1998, which similarly sets a statutory rate of 8% above the Bank of England base rate. If you are invoicing UK or EU customers, your contract's chosen rate must equal or exceed the statutory rate to be enforceable — undershooting is treated as an unfair contract term. This calculator assumes US conventions; for cross-border invoicing the rate selection step needs to incorporate the destination country's late-payment regime.