1. What is the Interest Calculator for Overdue Invoices?

This calculator helps businesses and individuals calculate the interest owed on overdue invoices according to UK practices. It uses a standard formula to determine the appropriate interest charges for late payments.

2. How Does the Calculator Work?

The calculator uses the interest calculation formula:

Where:

• \( I \) — Interest amount (currency units)
• \( A \) — Invoice amount (currency units)
• \( R \) — Annual interest rate (%)
• \( D \) — Days late (days)

Explanation: The formula calculates daily interest by converting the annual rate to a daily rate (dividing by 365 days), then multiplies by the number of days the payment is overdue.

3. Importance of Interest Calculation

Details: Proper interest calculation ensures fair compensation for late payments, helps maintain cash flow, and encourages timely payments from customers. In the UK, businesses have the right to charge interest on overdue invoices under the Late Payment of Commercial Debts (Interest) Act 1998.

4. Using the Calculator

Tips: Enter the original invoice amount in currency units, the annual interest rate as a percentage, and the number of days the payment is overdue. All 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 in the UK is currently 8% plus the Bank of England base rate for business-to-business transactions.

Q2: Can I charge interest on overdue invoices?
A: Yes, under UK law, businesses can charge interest on overdue commercial invoices. You should include this right in your terms and conditions.

Q3: Are there any limits on how much interest I can charge?
A: While you can agree on interest rates in contracts, the statutory rate provides a baseline. Excessive interest charges may be challenged as penalty clauses.

Q4: Should I use calendar days or business days?
A: Interest is typically calculated using calendar days, including weekends and holidays, unless otherwise specified in your contract.

Q5: Can I charge a fixed fee in addition to interest?
A: Yes, UK regulations allow for a fixed fee (currently £40-£100 depending on invoice amount) in addition to interest for late payments.