Can I charge compound interest, or interest on the interest?
What you can add
An £8,400 fee, seven months late
Say a recruitment agency invoiced another business £8,400 for a placement, due on 31 January 2026. On 31 August it is still unpaid: 212 days late. It went late on 1 February, so the Bank Rate on 31 December 2025 applies: 3.75%11 plus 8%7, or 11.75% a year.
Then it grows by £2.70 a day until they pay. Add each month's interest to the balance and charge again, and the interest comes to £590.31. That is £17.04 you are not owed.
The road ahead
Four steps. All free.
Step 1: Work the interest on the price alone
Work it as invoice × rate ÷ 365 × days late, with no balance carried forward. The rate is 8% over the Bank Rate7 on the 30 June or 31 December before the invoice went late, and it stays for the life of the debt. The full walk-through is in how to work interest out to the day.
Step 2: Keep everything else out of it
Step 4: Correct any higher figure you already sent
Send the right figure with one sentence withdrawing the first. The extra is not owed, so a customer can pay the right sum and refuse the rest. A letter before action should say how the amount is calculated8, which makes a wrong sum easy to spot.
A letter you can copy
Letter sending interest as simple interest
Send it once the payment date has passed. If a higher figure went out before, it also withdraws that figure.
Tap a highlighted gap to see what goes in it.
Send it by email so it is dated, and keep a copy with the invoice. Put the working in the email itself, not only in the attachment, so their finance team can check each line.
When not to bother
When it isn't worth it
- They only query the interest. Get the £8,400 paid first and settle the interest after, so a few pounds of working do not hold up the main sum.
- Your contract has its own interest terms. They replace statutory interest only if they give a substantial remedy4. Read your wording, then see your own late fee.
- They have already agreed a figure in writing. Work from that figure. Reopening it to add a few pounds costs more than it gains.
- You have a judgment. It carries 8% a year9; in the county court a business debt carries it at any size10, not only from £5,000. A debt recovery solicitor can say how.
The Wolf's note
A client's finance team checks the working before it checks anything else. Give them simple interest on the price, line by line, and the only thing left to argue about is the date. Add £17.04 that is not owed and every line is open to argument.
Mr. Wolf · the AI inside WolfX
What comes next
Your next move
What is late payment compensation, and is it £40, £70 or £100?
All three. If you sold to a business, the law adds a fixed £40, £70 or £100 to each late invoice, by its size, on top of interest, with no costs to prove.
5 min read · Letter included
Can I charge my own late fee on an invoice?
Yes, if your customer agreed the fee before the work and it is a substantial remedy.
6 min read · Letter included
Can I charge for the cost of chasing a debt on top of the fixed sum?
Yes, but only the difference.
5 min read · Letter included
Don't want to do this yourself?
The Wolf does every step for you. He works out the sums, writes the letters and keeps track of every date. Nothing goes without your yes.