Payment Terms & Late Payment Calculator
An invoice paid 45 days late is a loan you made to the customer — at your interest rate. Enter the invoice value, the terms you offer, when it actually gets paid, and your cost of money, and see what the delay costs, per invoice and across the year's book.
Method and content reviewed October 1, 2026 · formulas checked against a test suite · runs entirely in your browser
Financing cost = Invoice × Annual rate × (Days late ÷ 365)$2,500.00 × 0.20 × 45/365 = $61.64The levers: deposits on long jobs (30–50% kills most of the float), payment on completion over net terms where you can, and a stated late fee that gets applied. On offering early-pay discounts: 2/10 net 30 implies a ~37% annual rate to move cash 20 days — cheap if you borrow at 20.0%, expensive if you don't.
Commercial services: where the number comes from
A contractor invoices a commercial client $2,500 on net-30 terms; it reliably pays at 75 days. His credit line costs 20% a year, and about 60 such invoices go out annually. (Illustrative example — use your own book.)
| Input | Value |
|---|---|
| Invoice value | $2,500 |
| Terms offered | 30 days |
| Days actually taken | 75 |
| Cost of money | 20%/yr |
| Invoices per year | 60 |
Result: $61.64 per invoice — $3,698 a year, with $30,822 of float outstanding
The delay costs 2.5% of the invoice in pure margin — on a job priced at a 30% margin, more than a twelfth of the profit, for zero work. A deposit or completion terms cut most of it; a stated late fee applied consistently cuts the rest.
Load this example into the calculatorThe calculation
| Days beyond terms | 75 − 30 = 45 |
| Financing cost | $2,500 × 0.20 × 45/365 = $61.64 |
| Share of the invoice | $61.64 ÷ $2,500 = 2.5% |
| Annual drag across 60 invoices | 60 × $61.64 = $3,698.40 |
| Working capital tied up | $2,500 × (75 ÷ 365) × 60 = $30,821.92 |
How this calculator works
Every result comes from the formulas below — the math shown is the math used. Change any input and results update instantly in your browser; nothing is sent to a server.
- Days beyond terms:
Days Late = Actual Payment Days − Terms Offered - Financing cost of the delay:
Cost = Invoice × Annual Rate × (Days Late ÷ 365)The annual rate is what your money costs: an overdraft or credit-line rate, or your own cost of capital. - Annual drag across the book:
Annual Drag = Cost per Invoice × Invoices per Year - Working capital tied up:
Float = Invoice × (Payment Days ÷ 365) × Invoices per YearMoney owed to you at any moment — the float your business finances while customers wait.
What the result means
The financing cost treats the delay as a loan at your cost of money, because that's what it is. The margin-equivalent row shows the share of the invoice the wait eats, and the float row totals what customers owe you at any moment.
When to use it
Use it to price what your slow payers cost, to decide on deposits and completion terms, and to check whether an early-payment discount actually pays.
Want the concept behind the math in depth? Read The Cost of Slow Payment: Every Day Past Terms Is a Loan You Made or What Gross Margin Should I Target? Work It Out, Don't Guess It.
Common mistakes
- Treating slow payment as free because no invoice says so — the cost is real and measured here.
- Offering 2/10 net 30 without computing the ~37% implied annual rate.
- Letting a stated late fee exist on paper and never applying it.
Frequently asked questions
How much does a late payment actually cost?
The financing of every day beyond terms. A $2,500 invoice paid 45 days past net-30 at a 20% cost of money: $2,500 × 0.20 × (45 ÷ 365) = $61.64 — about 2.5% of the invoice in pure margin, for zero extra work. Across a year's book, slow payers quietly eat what a small job's worth of profit used to be.
What rate should I use as my cost of money?
Your actual marginal cost: the overdraft or credit-line rate if you run one, or — if you're debt-free — the rate your cash could reasonably earn, plus the risk of the receivable itself. What it is never is zero: money waiting in someone else's account is money not working in yours.
Are early-payment discounts worth offering?
Do the implied rate before offering: 2/10 net 30 gives up 2% of the invoice to move cash 20 days earlier — an implied annual rate of (2 ÷ 98) × (365 ÷ 20) ≈ 37%. Taking such a discount from your own suppliers is usually sound at any borrowing rate; offering one is expensive unless your cost of money is genuinely brutal or the customer is a repeat slow payer.
How do I fix slow payment without losing customers?
Deposits on long jobs (30–50% removes most of the float), payment on completion instead of net terms where you can, invoices sent the day of completion — not end of month — and a stated late fee that actually gets applied. The customers worth keeping don't need 90 days; the ones who do are financing their business with yours.
Slow payment eats margin quietly — check that the margin you target survives your real payment terms.
Re-check the required margin →Related tools and guides
Payment Terms & Late Payment Calculator is part of RateCraft, a set of free pricing and estimating tools for contractors and service businesses. Results are calculated entirely in your browser and are estimates for planning purposes — see our disclaimer and methodology.