The governing formula for late payment interest is universal: Interest = Principal × (Annual Rate ÷ 365) × Days Overdue. The variable that changes from country to country is the annual rate and whether it is contractual, statutory, or a hybrid.
United States
There is no federal statute granting commercial creditors interest on an overdue invoice. Interest is primarily a matter of contract law, with 1.5% per month (18% APR) serving as the standard market convention for private B2B contracts.
United Kingdom
The Late Payment of Commercial Debts (Interest) Act 1998 grants a statutory right to interest at the Bank of England base rate plus 8% per annum. It also mandates fixed recovery compensation of £40, £70, or £100 per invoice.
European Union
Directive 2011/7/EU provides a right to statutory interest at the ECB reference rate plus 8% per annum, plus a minimum fixed compensation of €40. National transpositions may set higher margins (e.g., Germany's 9 points over ECB base).
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India (MSME)
The MSMED Act, 2006 offers significant protection to registered MSME suppliers, including compound interest at three times the RBI bank rate for delays exceeding 45 days.
Legal Disclaimer
This article is for informational purposes only. It is not legal or financial advice. Statutory rates and rules vary; confirm with official sources before relying on them. See our disclaimer.