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Choosing the right Late Fee Policy (Interest)
Choosing the right Late Fee Policy (Interest)

Want to charge an annualised amount? Pick the best one for you

Denym avatar
Written by Denym
Updated over a week ago

If you need to charge interest on overdue customer invoices, Paidnice offers two main options: invoice-level daily interest, or statement-level interest. This guide explains how each method works, pros and cons, and recommendations on ideal usage scenarios.

Invoice-Level Daily Interest

This policy charges interest incrementally based on:

- The overdue balance of each individual invoice

- The number of days the invoice is overdue

- Your set annual interest rate

Interest accrues daily, but is only invoiced based on your repeat configuration (e.g. every 7 or 30 days).

Pros: Very specific to the circumstances of each late invoice. Charges interest proportional to the dollar amount and lateness.

Cons: Can be more tedious to manage if customers have multiple overdue invoices. Interest charged sporadically whenever overdue period thresholds are hit.

Best For: Customers with mainly on-time payments, but occasional late invoices. Also if you want to keep late fees linked to specific invoices.

Statement-Level Interest

This policy calculates interest based on:

- Total outstanding account balance

- Your annual interest percentage

Interest is prorated daily, then charged automatically on a fixed date you specify monthly.

Pros: Simpler to manage. Motivates customers to pay all invoices by statement date to avoid recurring fee on entire balance.

Cons: Single late invoice isn't penalized until month-end statement interest applies.

Best For: Customers with chronic late payments on multiple invoices. Also captures true total amount owing correctly in your general ledger reports.

Our Recommendation

The statement-level interest approach tends to work best for applying an annualized late penalty rate. By charging on total outstanding debt once per fixed period, it incentivizes good payment behavior on all invoices and keeps accounting clean.

Invoice-specific policies still play a role where you want incremental penalties linked to individual invoices or line items. But for an overall debtor interest rate, statement-level charging on the full balance is typically preferable.

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