📚 Formula breakdown
How invoice late fees are calculated
A late fee is just a function of balance, days late, and the policy type.
The tricky part is that policies are written in different “languages”: some are a flat dollar amount, some are a percent of the invoice,
and some are interest-like (APR). This calculator converts everything into a clean breakdown so you can see the fee, the total due,
and how the fee compares on an annualized basis.
Step 1: Compute chargeable late days
Most businesses include a grace period — a short buffer after the due date where no penalty applies.
We calculate:
- Late days = max(0, Days late − Grace days)
Step 2: Apply your policy
We then compute the late fee using one of five common policy types:
- Flat fee (one-time):
Fee = FlatFee if LateDays > 0, else 0.
- Percent of invoice (one-time):
Fee = InvoiceAmount × (PercentFee / 100) if LateDays > 0.
- Daily percent (simple):
Fee = InvoiceAmount × (DailyPercent / 100) × LateDays.
- APR interest (simple):
Fee = InvoiceAmount × (APR / 100) × (LateDays / 365).
- APR interest (compounded daily):
Fee = InvoiceAmount × [(1 + APR/100/365)^{LateDays} − 1].
Step 3: Optional fee cap
Some contracts cap late fees to avoid runaway penalties, especially for large invoices. If you set a cap,
we limit the fee to:
- Max fee = InvoiceAmount × (CapPercent / 100)
- Capped fee = min(Computed fee, Max fee)
Step 4: Total due and effective annualized rate
The Total due is just InvoiceAmount + LateFee. To make policies comparable, we also compute an
effective annualized rate from the fee and the late period. This is useful when you want to answer
“How expensive is this, really?” For non-zero late days:
- Simple annualized rate ≈ (LateFee / InvoiceAmount) × (365 / LateDays) × 100%
- Compound annualized rate ≈ [(1 + LateFee/InvoiceAmount)^{365/LateDays} − 1] × 100%
Annualizing is optional — it can look scary for short late periods — but it helps you compare a flat fee
against an interest-based policy using the same yardstick.
🧪 Examples
Realistic scenarios (with numbers)
Use these examples to sanity-check your policy (or explain it to a client). The exact fee depends on your settings,
but the logic stays the same.
Example A: Flat fee after a grace period
Invoice = $5,000. Days late = 10. Grace = 5 days. Flat fee = $50.
Chargeable late days = 10 − 5 = 5. Because this is a one-time flat fee, the fee is $50.
Total due = $5,050. This policy is simple and predictable — clients usually understand it immediately.
Example B: One-time percent penalty
Invoice = $2,000. Days late = 20. Grace = 0. Percent fee = 2%.
Fee = 2,000 × 0.02 = $40. Total due = $2,040.
Percent fees scale with invoice size, which can feel fairer than a flat fee if your invoices vary widely.
Example C: Daily percent (simple)
Invoice = $1,500. Days late = 15. Daily percent = 0.25%/day.
Fee = 1,500 × 0.0025 × 15 = $56.25. Total due = $1,556.25.
Daily policies strongly motivate faster payment — but they can snowball quickly, so consider a cap.
Example D: APR interest (simple vs compounded)
Invoice = $10,000. Days late = 30. APR = 18%.
Simple interest fee = 10,000 × 0.18 × (30/365) ≈ $147.95.
Compounded daily fee = 10,000 × [(1 + 0.18/365)^{30} − 1] ≈ slightly higher.
APR policies are common in contracts because they resemble “interest on overdue balances.”
Example E: Cap the fee for large invoices
Invoice = $50,000. Daily percent = 0.5%/day. Days late = 20.
Uncapped fee would be 50,000 × 0.005 × 20 = $5,000 (10% of invoice).
If you set CapPercent = 5%, max fee becomes 50,000 × 0.05 = $2,500.
The cap makes the worst-case outcome predictable, which reduces disputes.
Note: These examples are illustrative. Always follow your contract language, and consider local rules about what fees are permitted.