How to calculate late fees on invoices

View the Terms

Check the terms of the finance charge in writing, this will usually be listed somewhere on the invoice or contract. This can be phrased as “past-due bills will be charged a late fee” followed by the percentage amount, such as a 5 percent per month calculated at a daily rate.

How to Calculate the Finance Charges

Multiply the amount due by the daily rate. For example, if the customer owes $1000, the invoice is 60 days past due, and the late fee is 5% per month calculated on a daily rate, then multiply 0.05 by 12 to get the annual rate of 0.6, then divide 0.6 by 365 to get the daily rate of 0.00164, then multiply that daily rate by the number of days late of 0.24657, and finally multiply that number by the amount owed (0.09864 x $1,000) to get the total late fee of $98.63.

Another example, if the customer owes $100, is 30 days late and the late fee is 2% per month, then multiply 0.02 by 12 to get the annual rate of 0.24, then divide 0.24 by 365 to get the daily rate of 6.58, then multiply that daily rate by the number of days late (30 x 6.58 = 0.0197), and finally multiply that number by the amount owed (0.0197 x $100) to get the total late fee of $1.97.

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