Learn how to add and automate late fees and interest in Xero for overdue invoices with this step-by-step guide.
Setting up automated late fees in Xero or QuickBooks Online ensures customers pay on time, improving your cash flow and reducing outstanding balances.
In this video, you'll learn:
How to set up late fees in Xero (or QuickBooks Online).
How to automatically add interest to overdue invoices.
Best practices for enforcing late payment policies.
Understanding Your Late Fee Options
Option 1: Invoice Late Fees
What it is: Individual charges applied to each overdue invoice.
How it works:
Invoice goes 7 days overdue → 10% fee applied.
Three overdue invoices → Three separate fees.
Can add to existing invoice or create new.
Best for:
Simple fee structures.
One-time penalties.
Clear invoice-to-fee relationships.
Example:
Invoice | Invoice Total | Late Fee or Interest Charge |
Invoice #1001 | $1000 | $100 late fee |
Invoice #1002 | $500 | $50 late fee |
Invoice #1003 | $750 | $75 late fee |
Totals |
| $225 in late fees |
Option 2: Statement Interest Charges
What it is: Consolidated monthly interest on all overdue balances.
How it works:
All overdue amounts calculated together, eg summarised
Interest compounds based on days overdue.
Single monthly charge for all overdue debt.
Best for:
Contacts with multiple overdue invoices.
Calculating and simplifying monthly finance charges.
Ongoing interest accumulation.
Simplified billing (one fee invoice).
Example:
Customer has 3 overdue invoices totaling $2,250 Interest rate: 18% per annum Days overdue vary: 78, 48, and 43 days Monthly interest charge: $67.43 (calculated daily)
Setting Up Invoice Late Fees
Step 1: Create Your Fee Policy
Navigate to your customer group in Paidnice.
Add new policy → "Invoice Late Charge"
Configure your settings.
Step 2: Choose Your Fee Structure
Fixed Amount:
Simple: $25 per overdue invoice.
Predictable for customers.
Works well for similar invoice sizes.
Percentage-Based:
Fair: 10% of invoice value.
Scales with invoice size.
Industry standard approach.
Annualized Interest:
Professional: 18% per annum.
Calculated daily (pro-rata).
Similar to credit terms.
Step 3: Set Trigger Conditions
Timing Options:
Immediate: Charge on due date (aggressive).
Grace period: 3-7 days after due (balanced).
Extended: 14+ days after due (lenient).
Repeat Settings:
One-time charge only.
Recurring monthly until paid.
Escalating fees over time.
Step 4: Configure Application Method
Add to Existing Invoice:
Pros: Single invoice for customer.
Cons: Can complicate reconciliation.
Best for: Small fees.
Create New Invoice:
Pros: Clean separation, easy tracking.
Cons: Additional invoice to manage.
Best for: Professional approach.
Setting Up Statement Interest Charges
Step 1: Understanding the Calculation
Statement interest consolidates all overdue amounts:
Calculates interest per invoice based on days overdue.
Combines into single monthly charge.
Professional presentation.
Step 2: Interest Rate Configuration
Standard Setup:
Base rate: 18% per annum Applied: Monthly on 1st Minimum debt age: 1 day overdue
UK Specific - Bank of England Integration:
BoE base rate: 4.25% (auto-updated) Statutory addition: 8% Total rate: 12.25% per annum Legal compliance: Automatic
Step 3: Advanced Settings
Calculation Start Date:
Due date: Standard approach.
Issue date: More aggressive.
Custom: Specific business rules.
Minimum/Maximum Debt Age:
Minimum: Avoid charging too early.
Maximum: Cap very old debt.
Recommended: 7 day minimum.
Credit Adjustments:
Account for partial payments.
Reduce interest on paid portions.
Maintain accuracy.
Waiving Late Fees
When to waive:
First-time occurrence for good customers.
Genuine disputes being resolved.
System errors or miscommunication.
Strategic relationship considerations.
How to waive in Paidnice:
Go to Completed Actions.
Find the late fee.
Click "Remove late fee"
System voids the charge invoice.
Need help implementing late fees? Contact support for:
Fee structure recommendations
Industry-specific best practices
Technical setup assistance
Customer communication templates
Visit paidnice.com to get started with a free trial and transform your accounts receivable management today.
Remember: Late fees aren't about penalizing customers—they're about fairly compensating your business for the cost of delayed payments while encouraging better payment behavior.