Late Payment Interest Calculator
Enter the overdue amount, how many days late it is, and your interest rate to see what the delay is costing.
Runs entirely in your browser — your numbers never leave this page.
How it works
Late-payment interest is simple interest on the overdue balance for the days it is late:
Interest = Amount × Annual rate × (Days late ÷ 365)
- Contract first: the enforceable rate is the one in your signed contract or invoice terms ("1% per month on overdue balances"). Without it, you fall back to your state's statutory rate.
- State rates vary — many states set 6–12% per year on judgments and overdue commercial debts; a few let contracts set higher rates within usury limits.
- 1% per month ≈ 12% per year — a common contract term. On a $5,000 invoice 45 days late, that is about $74.
- Interest alone rarely motivates payment — its real power is making the debt grow on paper, which strengthens demand letters and small-claims filings.
- Some states also allow attorney's fees and costs on commercial collections if your contract says so — another reason to write terms down.
Frequently asked questions
How is late payment interest calculated?
Simple interest: amount × annual rate × (days late ÷ 365). A $5,000 invoice 45 days late at 12% accrues about $74 in interest.
Can I charge interest if my contract doesn't mention it?
Usually only at your state's statutory rate, if one applies to your situation. To charge your own rate reliably, put it in the contract or invoice terms before work begins.
What is a typical late fee rate?
1–1.5% per month (12–18% annual) is common in contracts. Courts generally enforce agreed rates unless they violate state usury limits.
What is the difference between a late fee and interest?
A late fee is a flat penalty (e.g. $50 after 30 days); interest accrues daily on the balance. Many contracts use both: a flat fee plus monthly interest.
Do I charge interest on the tax portion too?
Generally interest applies to the full overdue balance including tax, unless your contract says otherwise. Check state rules if the amount is large.
When does the clock start?
The day after the due date on your invoice terms ("Net 30" means day 31 starts the count). Without stated terms, it starts when a court considers the debt due — another reason to write terms down.
Is late-payment interest taxable income?
Yes — interest you collect is ordinary income and must be reported, just like the underlying payment.
Can I compound the interest monthly?
Only if your contract says so. Most statutes and default rules use simple interest; compounding needs explicit agreement.
What if the client is in another state?
Your contract should name which state's law governs. Without that, collections get complicated — pick your home state in your standard terms.
At what point should I send it to collections or court?
A common escalation: friendly reminder at 7 days, firm demand with interest tally at 30, final notice at 60, then small-claims court or collections. Interest math strengthens every step.