The late fee formula in one line
Late fee = overdue amount × (annual rate ÷ 365) × days late
Example: $5,000 at 12% a year, paid 45 days late: 5,000 × (0.12 ÷ 365) × 45 = $73.97. That is simple interest. A monthly rate, a daily rate, a one-time percentage and a flat fee each work differently; all five are in the methods below.
Step 1: find the rate that applies
- Your written terms come first. If your contract, your accepted quote or your terms and conditions set a late-fee rate or amount, that is the figure to use. Clause wording to copy is in the payment terms guide.
- If nothing was agreed, state law may supply a default (legal) rate for overdue money. The late fee calculator lists it for all 50 states + DC, and each state has its own page with the statute text, for example New York or Texas.
- Whatever rate you use must stay within the maximum for the state whose law governs the contract; see step 4.
Step 2: count the days late
Count calendar days, not business days, from the day the fee or interest starts to the day payment arrives. With Net 30 terms on an invoice dated 1 March, payment is due on 31 March and is late from 1 April. For due dates, use the payment due date calculator; for how late each open invoice is, the invoice aging calculator.
A grace period in your contract is separate from a statutory start date
A grace period is something you agree: for example, “a late fee applies if payment is not received within 10 days after the due date”. With a due date of March 2, 2026, the last day of that grace period is March 12, 2026, so the fee can apply from March 13, 2026. A statutory start date is different: it is set by a statute for the default interest it supplies when the contract names no rate. Keep the two apart when you count.
Texas: legal interest begins on the 30th day after the amount is due
“If a creditor has not agreed with an obligor to charge the obligor any interest, the creditor may charge and receive from the obligor legal interest at the rate of six percent a year on the principal amount of the credit extended beginning on the 30th day after the date on which the amount is due.”
Example: $10,000 due on March 2, 2026, paid on May 1, 2026, with no agreed rate. That is 60 days late. Interest runs from day 30 (April 1, 2026), so the first 29 days earn nothing: 60 − 29 = 31 days. At the 6% legal rate: 10,000 × (0.06 ÷ 365) × 31 = $50.96. The Texas late fee calculator applies the same rule.
Virginia open accounts: counted from the invoice, not the due date
“The seller or provider of goods sold or services provided on an open account shall be entitled to, and may collect, interest at the legal rate upon the unpaid balance if (i) there exists no written agreement for closed-end credit under § 6.2-311 or open-end credit plan under § 6.2-312 and (ii) the purchaser or recipient of the goods or services fails to make payment in full within 60 days after mailing or presentation of a billing statement or invoice. Such interest shall begin to accrue on the day following such 60-day period.”
Example: an invoice for $4,000 on an open account, with no written credit agreement, presented on February 2, 2026 and paid on May 4, 2026. The 60-day period ends on April 3, 2026, so interest accrues from April 4, 2026. Days since presentation: 91; days of interest: 91 − 60 = 31. At the 6% legal rate: 4,000 × (0.06 ÷ 365) × 31 = $20.38. Note that the invoice's own due date does not enter this count.
Day-count basis: 365 unless the contract says 360
Use actual days late over a 365-day year. Use a 360-day year only if your contract says so, because it gives a slightly higher figure: $10,000 at 12% for 30 days is $98.63 on 365 days and $100.00 on 360 days.
The 5 ways to calculate a late fee, with worked examples
All five examples use the same overdue invoice: $5,000, paid 45 days late. The last column turns each result into an annual simple rate, the figure to compare with a state cap written per year: (fee ÷ amount) × (365 ÷ days).
Method 1: annual interest rate (simple interest)
fee = amount × (annual rate ÷ 365) × days
12% a year: 5,000 × (0.12 ÷ 365) × 45 = $73.97.
Method 2: monthly rate, such as 1.5% per month
fee = amount × monthly rate × whole months, or pro-rated by day: amount × (monthly rate × 12 ÷ 365) × days
1.5% per month, counting each started month as a whole month (45 days late = 2 months): 5,000 × 0.015 × 2 = $150.00. Pro-rated for 45 days: 5,000 × (0.015 × 12 ÷ 365) × 45 = $110.96. Your terms should say which one applies, and whether a part month counts as a whole month.
Method 3: daily rate or a per-day contract penalty (“overdue fine”)
fee = amount × daily rate × days; for a fixed amount per day, fee = amount per day × days
0.05% per day: 5,000 × 0.0005 × 45 = $112.50. As an annual rate that is 0.05% × 365 = 18.25%.
Method 4: one-time percentage of the overdue amount
fee = amount × percentage, charged once however long the invoice stays unpaid
5%: 5,000 × 0.05 = $250.00. Paid 45 days late, that equals 40.56% a year; paid later, the annual equivalent falls.
Method 5: flat late fee
fee = the agreed amount
A $50 flat fee is $50.00 whatever the invoice amount. On this invoice, 45 days late, it equals 8.11% a year; on a smaller invoice the same fee is a much higher annual rate.
| Method | Terms | Fee | Annual simple equivalent |
|---|---|---|---|
| Annual rate | 12% a year | $73.97 | 12% |
| Monthly rate, pro-rated | 1.5% a month | $110.96 | 18% |
| Daily rate | 0.05% a day | $112.50 | 18.25% |
| One-time percentage | 5% once | $250.00 | 40.56% |
| Flat fee | $50 once | $50.00 | 8.11% |
For a one-time or flat fee, the annual equivalent is arithmetic for comparison only; whether a flat charge counts toward a state's interest cap is a separate legal question, covered on the maximum late fee page.
Simple vs compound interest
Simple interest is charged on the unpaid amount only. Compound interest is also charged on interest already added. Use simple interest unless your contract, or the statute that supplies the rate, says otherwise.
Colorado's default rate is one statute that does:
“When there is no agreement as to the rate thereof, creditors shall be allowed to receive interest at the rate of eight percent per annum compounded annually for all moneys after they become due on any bill, bond, promissory note, or other instrument of writing [...] but not exceeding forty-five percent per annum”
Example: $10,000 unpaid for 2 years at 8%. Simple: 10,000 × 0.08 × 2 = $1,600.00. Compounded annually: 10,000 × ((1 + 0.08)2 − 1) = $1,664.00. Within the first year the two are the same.
If a contract provides for daily compounding: fee = amount × ((1 + annual rate ÷ 365)days − 1). $10,000 at 12% for 365 days is $1,200.00 simple and $1,274.75 compounded daily.
The late fee calculator offers both.
Partial payments: two ways to apply them
When a customer pays part of an overdue invoice, the result depends on what the payment is applied to first. That is a matter for your contract (and the law that governs it); this page takes no position on which applies. Here is the arithmetic both ways.
$10,000 at 18% a year, simple. After 60 days late, $295.89 of interest has accrued and the customer pays $4,000. The rest is paid 30 days later.
| A: interest first | B: principal first | |
|---|---|---|
| Payment applied | $295.89 to interest, $3,704.11 to principal | $4,000 to principal; $295.89 interest still owed |
| Principal after the payment | $6,295.89 | $6,000.00 |
| Interest for the next 30 days | $93.14 | $88.77 |
| Total interest | $389.04 | $384.66 |
In B, the accrued interest is still owed but, as simple interest, does not itself earn interest.
How to show a late fee on the invoice
- State the terms. Print the due date and your agreed late-fee terms on every invoice. In our invoice generator the Terms & Conditions field is free text and prints on the invoice: replace any sample text there with your own agreed terms.
- Bill the fee as its own line. If you charge a fee you have worked out, add it as a separate line item (for example “Late payment interest, 12% a year, 45 days on invoice INV-001”) on a follow-up invoice or statement, so the customer can see how it was reached.
- Do the arithmetic first. The generator does not compute late fees; work the figure out with the methods above or the late fee calculator.
Clause wording for the terms themselves (annual interest, monthly rate with a cap, flat fee, one-time percentage, grace period) is in the payment terms guide. None of it is a promise that a clause is enforceable where you are.
Check your figure against your state's maximum
Convert your fee to an annual rate (the last column of the table above) and compare it with the cap for the state whose law governs the contract. Caps differ a great deal: some states set none on a rate businesses agree in writing, others have a fixed ceiling or one that depends on the amount or the debtor. The maximum invoice late fees by state page lists every state with its conditions and statute, and has a rate checker.
If the invoice stays unpaid, the demand letter generator drafts a formal letter that can include the interest figure.
Outside the US: other countries set their own late-payment rules. The UK and EU rules are quoted in what the law says about payment periods.
Frequently asked questions
How do you calculate a late fee on an invoice?
For interest at an annual rate: overdue amount × (annual rate ÷ 365) × days late. $5,000 at 12% a year, 45 days late, is 5000 × (0.12 ÷ 365) × 45 = $73.97. A monthly or daily rate is multiplied by the months or days late; a one-time percentage or a flat fee is charged once.
How do I calculate a 1.5% per month late fee?
Multiply the overdue amount by 1.5% for each month late: on $5,000 that is $75.00 a month, or $150.00 for 45 days late if each started month counts as a whole month (2 months). Pro-rated by day it is amount × (1.5% × 12 ÷ 365) × days, which gives $110.96 for 45 days. As an annual simple rate, 1.5% a month is 18% a year.
When does interest start on a late invoice?
When your contract says it does. Where a state statute supplies the rate because the contract is silent, the statute can set a later start: in Texas legal interest begins on the 30th day after the amount is due, and in Virginia interest on an open account with no written credit agreement begins on the day after the 60 days that follow mailing or presentation of the invoice.
Should I use 360 or 365 days for late payment interest?
Use the actual number of days late and a 365-day year unless your contract says otherwise. The choice matters: $10,000 at 12% for 30 days is $98.63 on a 365-day year and $100.00 on a 360-day year.
How do I calculate a contract overdue fine per day?
Multiply the overdue amount by the daily rate and the number of days late. A 0.05% per day fine on $5,000 for 45 days is 5000 × 0.0005 × 45 = $112.50. For a fixed amount per day, multiply that amount by the days late. 0.05% per day equals 18.25% a year, the figure to compare with a state cap.
Does your invoice generator add late fees automatically?
No. The generator does not compute late fees. Put your agreed late-fee terms in its Terms & Conditions field, which prints on the invoice, and if you bill a fee you have worked out, add it as its own line item.
Is late payment interest simple or compound?
Work it out as simple interest unless your contract or the statute that applies says otherwise. Colorado's statute is one example of a statute that does: its 8% default rate is "compounded annually". Compounding changes the result only once interest has been added to the balance, so for less than a year of annual compounding the figures are the same.
Not legal advice. The examples show the arithmetic. Whether a fee may be charged, and how much, depends on your contract and the law that governs it. The quoted statutes are shown as published on the linked sources on the dates given.