1. What is Interest on Overdue Invoices?

Interest on overdue invoices is a financial charge applied to unpaid invoices in the UK. It compensates businesses for late payments and encourages timely settlement of invoices according to agreed payment terms.

2. How Does the Calculator Work?

The calculator uses the interest calculation formula:

Where:

• \( I \) — Monthly interest (£)
• \( P \) — Invoice amount (£)
• \( r \) — Annual interest rate (decimal)

Explanation: The formula calculates the monthly interest charge by dividing the annual rate by 12 and multiplying it by the outstanding invoice amount.

3. Importance of Interest Calculation

Details: Proper interest calculation ensures fair compensation for late payments, helps maintain cash flow, and provides legal protection under UK late payment legislation.

4. Using the Calculator

Tips: Enter the invoice amount in pounds (£) and the annual interest rate in decimal format. Both values must be valid positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is the statutory interest rate in the UK?
A: The statutory interest rate for late payments in the UK is currently 8% plus the Bank of England base rate.

Q2: When can I charge interest on overdue invoices?
A: You can charge interest once the invoice becomes overdue according to your payment terms, typically 30 days after invoice date.

Q3: Are there any limits on interest charges?
A: Interest charges must be reasonable and comply with the Late Payment of Commercial Debts (Interest) Act 1998.

Q4: Do I need to notify customers about interest charges?
A: Yes, you should include information about late payment interest in your terms and conditions and notify customers when applying charges.

Q5: Can I charge a fixed fee in addition to interest?
A: Yes, under UK law you can charge a fixed fee for debt recovery in addition to statutory interest on overdue invoices.