How do I calculate late payment interest on a contractor invoice?
How to calculate late payment interest on a contractor invoice (formula + state caps)
Published May 19, 2026
Short answer
The standard formula is balance multiplied by the annual interest rate, multiplied by the number of days past due, divided by 365. The most common contractor rate is 1.5% per month (18% APR), which is permitted as a default in roughly 30 US states. Some states cap unsecured commercial interest lower (Alabama at 8%, Arkansas at 17%, New York at 16% on judgments). The rate is only enforceable if a written agreement, invoice, or signed estimate references it; verbal-only agreements typically default to the state's judgment rate, which is lower than the contractor would set.
We add the calculated late fee to every call.
Syntharra reads your contract's late-fee terms once, then includes the running interest charge on every collection call. Customers hear the exact amount owed today, with the late fee, every time. 10% on what is recovered, no monthly fee.
Try it on your booksThe formula
Late payment interest on a contractor invoice uses simple interest, not compound. The formula is balance times annual rate times days past due divided by 365. For a $5,000 invoice that is 45 days past due at 18% APR, the interest is $5,000 times 0.18 times 45 divided by 365, which works out to $110.96. For a $12,000 invoice at 60 days past due at the same rate, it is $354.25.
Most contractor invoices express the rate monthly (1.5% per month) rather than annually (18% per year). The two are equivalent for the formula; multiplying monthly rate by 12 gives the annual rate to plug in. Some contractors charge a flat late fee instead (typically $25 to $50 per month). Flat fees are simpler to enforce but recover less on small-dollar invoices and may be capped lower than percentage-based interest in some states.
State caps you cannot exceed
Most US states cap unsecured commercial interest somewhere between 12% and 24% APR. The cap matters because charging above it can render the entire interest provision unenforceable. Standard contractor rates by state include: California (10% if no written rate), Texas (6% if no written rate; up to 18% with written agreement), Florida (12% default; up to 18% with written agreement), New York (16% on judgments; commercial parties can contract higher), Pennsylvania (6% default; up to 12% with written agreement under PA Title 41), and Illinois (5% default; up to 9% with written agreement).
States with a Prompt Pay Act for construction (over 30 states have one) often allow a statutory rate that exceeds the general commercial cap, sometimes plus penalties. New Jersey's Prompt Payment Act, for example, sets statutory late interest at prime plus 1% on private construction work. Always check the state-specific Prompt Pay statute before settling on a number for a construction invoice.
Making the rate enforceable
Interest is only enforceable if it appears in writing on a document the customer agreed to before the work started. The standard place is the signed estimate or contract; the secondary place is the invoice itself, with a notice clause referring back to the signed agreement. Adding a late fee for the first time on a past-due invoice is generally not enforceable, because the customer never agreed to it; see the [how to add a late fee to an existing invoice](/answers/how-to-add-late-fee-to-existing-invoice) guide for the limited cases where this works.
When a customer disputes the late fee, the contractor has the burden of showing the written agreement. Keep signed estimates and contracts on file for at least the state's statute-of-limitations period (4 to 10 years for written contracts in most states). The [statute of limitations on invoices](/answers/statute-of-limitations-on-invoice) guide covers the timing rules.
How Syntharra handles the math
Syntharra reads the late-fee terms from the signed contract or QuickBooks/Xero/FreshBooks invoice settings during setup. From day 4 past due forward, every call places the running interest charge alongside the principal balance. The customer hears the exact figure, which usually settles the question of whether the late fee applies before any dispute can form.