How long should a grace period be before charging late payment interest?

Seven to fifteen days after the due date is standard practice, with 10 days the most common default. Shorter than 5 days looks punitive; longer than 15 trains clients to treat the grace period as the real due date.

Can I charge late payment interest with no grace period?

Yes, if your contract says interest starts the day after the due date. It is legal in most US states, but with a good client it costs more in goodwill than it earns. Reserve zero-grace terms for chronic late payers.

Does interest accrue during the grace period?

It depends on your clause. The friendlier convention accrues interest only from the end of the grace period. The stricter one accrues from the day after the due date but charges it only if the balance is still unpaid when the grace period ends. State which one you use.

Should every client get the same grace period?

No. Give reliable clients the standard 10 days and strip the grace period for clients who are always late. Put the per-client term in the contract before work starts, not in the reminder email after.

Does the grace period have to be in writing?

Yes. Put the grace period, the rate, and the accrual start date in the contract, and restate the policy on every invoice near the due date. A term the client never agreed to is very hard to enforce.

Late Payment Interest: Add It to the Invoice or Bill It Separately? Send It Separately

Guides · Updated October 2026

When a client finally pays 90 days late and owes you interest, the question becomes paperwork: do you add the interest to the invoice, or bill it separately? Bill it separately. A separate interest-only invoice, referencing the original invoice number, is cleaner for your books, clearer to the client, and easier to defend if the debt ever goes to collections. Revising the original invoice works, but it muddies a document that should stay a clean record of the work you did.

Why billing late payment interest separately wins

The original invoice is a closed record. It says what you delivered, when, and for how much. Interest is a different kind of thing: it accrues daily, so the number on a revised invoice is stale the moment you send it, and every revision overwrites the document that proves the original agreement. A separate interest invoice keeps the two apart. One records what was bought; the other records what the delay cost, with the rate and the date range spelled out so nobody has to ask.

There is also a practical accounting reason. Your bookkeeping software will want the interest recorded as its own line, with its own date, so you can track it against the contract rate. If you ever hand the debt to a collections agency or a court, two documents with a clear reference between them read better than one invoice that has been edited three times.

What the interest invoice should include

Keep it short but complete. The original invoice number and date, the date range the interest covers, the rate you are applying, and the calculation. Something like: "Interest on Invoice #1042, at 1.5% per month, for the period June 15 to September 15: $5,000 x 1.5% x 3 months = $225." That one line answers every question a reasonable accounts-payable person will ask.

Two conventions worth knowing. In the UK, HMRC's guidance for commercial late payment is to send a new invoice for the interest, and the interest is zero-rated for VAT. In Ireland, the official guidance goes further and says not to issue an invoice for interest at all, but to write a letter requesting payment, since interest keeps accruing daily. If you work internationally, check the local rule before you pick a format.

When adding it to the invoice is fine

I will not pretend the separate-invoice rule is absolute. If the amount is small, the client relationship is simple, and your accounting software handles line items cleanly, adding a distinct "Late Payment Interest" line to a revised invoice is defensible. QuickBooks Online in the US even has an automatic late fee feature that does exactly this. The requirement, either way, is the label: a separate line that names the charge, the rate, and the period. Never bury interest in a round-number "updated total" the client cannot verify.

Run the exact numbers on your overdue invoice.

Enter the balance, the rate, and the days overdue.

Open the Late Payment Interest Calculator

Frequently asked questions

Should late payment interest be added to the invoice or billed separately?

Bill it separately with an interest-only invoice that references the original invoice number. It keeps the original invoice a clean record of the work, makes the interest auditable, and is the format UK guidance recommends.

Can I issue an invoice for interest only?

Yes. An interest-only invoice is standard practice: include the original invoice number, the delinquency date range, the rate applied, and the calculation. Note that Ireland's official guidance prefers a payment request letter over an interest invoice.

Is late payment interest subject to VAT?

In the UK, late payment interest on commercial debts is zero-rated for VAT, calculated on the VAT-inclusive total owed. Rules vary by country, so confirm locally before issuing the invoice.

Do I need a contract clause to charge late payment interest?

Yes. You cannot add interest to an invoice after the fact if the client never agreed to it. The rate, the grace period, and the calculation method need to be in your contract or invoice terms before the work starts.

Invoicing guides in your inbox, roughly monthly: subscribe to the newsletter.