What is the difference between simple and compound interest on overdue invoices?

Simple interest accrues daily on the original invoice amount: Interest = Principal × Rate × (Days ÷ 365). Compound interest adds each month's interest to the principal before calculating the next month's interest, resulting in slightly more total interest over longer periods. For a $3,000 invoice at 18% overdue for 60 days, simple interest yields $88.77 vs. compound's $89.79 — the difference grows with time and invoice size.

Late Payment Interest & Fee Calculator

Q: Is it legal to charge interest on an overdue freelance invoice?

Yes, if the rate and method are specified in your written contract or engagement letter before work begins. You generally cannot add late fees retroactively. Most US states cap commercial late interest (commonly 18–24% annually), and charging above the legal maximum can void your entire late-fee claim. This calculator provides the math — consult a local attorney before pursuing a significant unpaid invoice.

Q: What late payment interest rate do most freelancers charge?

The most common freelance late-fee rate is 1.5% per month (18% annually). This rate is widely accepted, complies with most US state caps, and is typically specified in net-30 payment terms. Some freelancers use a flat fee ($25–$50) for administrative costs plus simple interest for ongoing compensation.

Q: What is a grace period and should I include one in my contract?

A grace period is a number of days after the due date during which no late fee accrues — typically 5–10 days. It accounts for postal delays, bank processing time, and honest mistakes. Including a grace period in your contract is professional practice: it demonstrates good faith while still protecting your right to charge interest after the window closes.

Enter your invoice amount, due date, and payment date to calculate exactly how much interest or late fee you're entitled to charge — with a full day-by-day breakdown.

Free Simple & compound interest Flat fee option

By Abdul Qadir · Last reviewed June 2025 · Methodology

Informational only. Results are estimates for calculation purposes only and are not legal advice. Late-fee rights depend on your contract terms and applicable state law. Consult a qualified attorney before pursuing an unpaid invoice.

📋 Invoice Details

Original Invoice Amount

Invoice Due Date

Actual / Expected Payment Date

⚙️ Fee Structure

Interest / Fee Method

Annual Interest Rate

Common freelance late-fee rates: 1.5%/month (18% annually). Check your contract and state law.

Grace Period (days)

days

Number of days after the due date before interest starts accruing. Many contracts specify a 5–10 day grace period.

⏰

Enter your invoice details and click Calculate Late Fee.

What is late payment interest and how is it calculated?

Late payment interest is a charge that accrues on an unpaid invoice after its due date, compensating the creditor for the time value of money and administrative burden of non-payment. Freelancers most commonly use simple interest at 1.5% per month (18% annually), calculated as: Interest = Principal × (Annual Rate ÷ 365) × Days Overdue. The right to charge late interest must be established in a written contract or engagement letter before work begins — it generally cannot be added retroactively. Most US states cap commercial late-interest rates, typically between 10% and 24% annually; charging above the legal maximum can void the entire late-fee claim.

Simple interest (most common for freelancers): Interest accrues daily based on the annual rate divided by 365. Total interest = Principal × Rate × (Days / 365). For example, a $2,500 invoice at 18% annual rate outstanding for 45 days: $2,500 × 0.18 × (45/365) = $55.48.

Monthly compound interest: Interest compounds monthly — each month's interest is added to the principal before the next month's interest is calculated. This results in slightly more interest than simple, especially over longer periods. Formula: Interest = Principal × (1 + Rate/12)^months − Principal. Partial months use daily simple interest at the monthly rate.

Flat fees: A one-time fee charged the moment the invoice becomes overdue. Many freelancers use a combination: a flat fee immediately (covers administrative friction) plus ongoing simple interest (compensates for the actual time cost of money).

Before charging late fees: (1) Your contract must specify the rate and method — you cannot charge a rate not agreed to in writing. (2) Most US states cap late interest on commercial invoices, typically at 18–24% annually. (3) Send a written notice first. (4) This tool is for calculation only — it is not legal advice.

// Simple interest: days_overdue = payment_date − (due_date + grace_period) interest = principal × (annual_rate / 100) × (days / 365) total_owed = principal + interest // Monthly compound interest: months = floor(days / 30) remaining_days = days mod 30 compound_int = principal × ((1 + rate/12)^months − 1) daily_rate = (rate/12) / 30 stub_int = (principal + compound_int) × daily_rate × remaining_days total_interest = compound_int + stub_int

⚠️ Legal notice: Late payment interest rates are regulated by state law. Charging more than the legal maximum (usury) can void your claim entirely. Always include your late-fee rate in your contract before work begins, and consult a lawyer if you're pursuing a significant unpaid invoice.

📍 Common State Late Payment Caps (Commercial Invoices)

For reference only — not legal advice. State laws change. Verify with a local attorney.

State	Typical commercial max rate	Notes
California	10% / year	CA Civ. Code §3289; parties may contract for higher rate up to 10%
New York	16% / year	N.Y. Gen. Oblig. Law §5-501; 9% judgment rate
Texas	18% / year	Tex. Fin. Code §302.001; 6% without contract
Florida	18% / year	Fl. Stat. §687.01; contract can specify higher
Illinois	9% / year	815 ILCS 205/4; Prompt Payment Act may differ
Washington	12% / year	RCW §19.52.020

Frequently asked questions

Is it legal to charge interest on an overdue freelance invoice?

Yes, provided the late-fee rate and method are specified in your written contract or engagement letter before work begins. You cannot add late fees retroactively. Most US states cap commercial late interest, commonly at 18–24% annually — charging above the legal maximum can void your entire late-fee claim. Some states (California, Illinois) have lower caps for commercial invoices. This calculator provides the math; consult a local attorney before pursuing a significant unpaid invoice.

What late payment interest rate do most freelancers charge?

The most common rate is 1.5% per month (18% annually). This is widely accepted in freelance contracts, complies with virtually all US state caps for commercial debts, and is explicitly recommended in standard net-30 payment terms templates. Some freelancers combine a flat administrative fee ($25–$50, charged immediately when overdue) with ongoing simple interest to compensate for both the nuisance and the lost time-value of money.

What is the difference between simple and compound interest on an overdue invoice?

Simple interest accrues daily on the original principal: Interest = Principal × Rate × (Days ÷ 365). Compound interest adds each month's interest to the principal before calculating the following month — a small additional cost over longer periods. For a $3,000 invoice at 18% overdue 60 days: simple = $88.77, compound = $89.79. For 120 days: simple = $177.53, compound = $180.70. The gap matters on large invoices or payments delayed more than 90 days.

What is a grace period and should I include one in my contract?

A grace period is a window of days after the due date during which no late fee accrues — typically 5–10 days. It accounts for bank processing time, postal delays, and genuine mistakes. Including a grace period is professional practice: it prevents disputes over minor timing issues while clearly establishing your right to charge interest after the window closes. Always state it explicitly in your contract: "A grace period of 7 days applies; interest at 1.5%/month accrues on day 8."