Late Payment Interest Calculator
Work out the interest you can charge a customer on an overdue invoice. Use your contract rate as simple or monthly compound interest, or the MSMED Act rate if you are a registered micro or small supplier in India.
The MSMED Act caps agreed credit at 45 days from acceptance, so we use 45 days.
Bank rate 5.75% as shown on rbi.org.in in November 2026. It changes with RBI policy, so check rbi.org.in before you send a claim.
| Period | Days | Interest | Balance |
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How to calculate late payment interest
Interest runs from the day after the due date until the day you are paid. With simple interest you charge the rate on the original amount only. With monthly compounding, which the MSMED Act requires, each month's interest is added to the balance and earns interest in the next month.
The unpaid invoice value. Take it from the customer ledger or the AR ageing report, after any credit notes and part payments.
Example: invoice INV-2041 still open at ₹10,00,000The rate in your contract or invoice terms, or three times the RBI bank rate under the MSMED Act. Find the bank rate on the rbi.org.in home page under current rates.
Example: 3 × 5.75% = 17.25% a yearFull months from the due date to the payment date. Any leftover days are charged at the daily rate on the compounded balance.
Example: 16 Jul to 15 Oct = 2 months and 29 days| Invoice amount | ₹10,00,000 |
| Accepted on / agreed credit | 1 Jun 2026 / 45 days |
| Due date / paid on | 16 Jul / 15 Oct 2026 |
| Rate (3 × 5.75% bank rate) | 17.25% a year |
| Interest payable | ₹43,059 |
- Monthly rate: 17.25% ÷ 12 = 1.4375%
- Two full months: 10,00,000 × 1.014375 × 1.014375 = ₹10,28,957
- Leftover 29 days: 10,28,957 × 17.25% × 29 ÷ 365 = ₹14,102
- Total due ₹10,43,059, so interest is ₹43,059. Simple interest for the same 91 days would be ₹43,007. The gap is small here and grows fast on long delays
Late payment interest rules in India
For most B2B sales, the interest you can charge is whatever the contract says. If you are a micro or small enterprise registered on Udyam, the MSMED Act sets a floor that the buyer cannot contract out of.
| Rule | What it says | Why it matters |
|---|---|---|
| MSMED Act section 15 | Pay by agreed date, max 45 days | Credit days above 45 from acceptance do not count. With no written agreement, payment is due within 15 days of acceptance |
| MSMED Act section 2(b) | Appointed day | The day after the 15 days from acceptance or deemed acceptance end. Interest starts here when there is no agreement |
| MSMED Act section 16 | 3x bank rate, monthly rests | Compound interest from the appointed day or the day after the agreed date, whatever the contract says |
| MSMED Act section 23 | Not tax deductible | The buyer cannot claim this interest as an expense when computing taxable income |
| Income-tax section 43B(h) | Late MSE dues disallowed | Unpaid dues to micro and small suppliers beyond the Act's limit are added back to the buyer's income for the year |
| Contract terms | Rate agreed with customer | Applies to medium enterprises, non-MSME suppliers and export sales. It must be in the contract or accepted invoice terms |
Based on the MSMED Act, 2006 and the RBI bank rate published on rbi.org.in. Check the current bank rate before you raise a claim. This is general information, not legal advice.
Get a one-page summary with the amount, dates, rate and month-by-month interest.
How to get overdue invoices paid without a fight
Interest works best as a lever, not a weapon. Most customers pay faster once they see the number growing, as long as your paperwork is clean.
State the credit days and the interest rate in your terms and on the invoice. A rate nobody agreed to is hard to collect.
Under the MSMED Act the clock starts on acceptance. Keep the GRN, delivery proof or email that shows when goods or services were accepted.
Show the running interest in your first overdue reminder. It moves the invoice up the customer's payment run.
Short payments and missing documents are the real reason most invoices age. Clear them first, then talk about interest.
Micro and small suppliers can file on the MSME Samadhaan portal. The case goes to the state facilitation council for conciliation and then arbitration.
Teams that log disputes and promised dates in one place, as in order-to-cash collections workflows, rarely need to charge interest at all.
Frequently asked questions
Count the days from the day after the due date to the payment date. For simple interest, multiply the amount by the annual rate and by days divided by 365. For monthly compounding, grow the amount by the monthly rate for each full month, then add daily interest for the leftover days.
Section 16 of the MSMED Act sets it at three times the bank rate notified by the RBI, compounded with monthly rests. With a bank rate of 5.75%, that is 17.25% a year. Check rbi.org.in for the current bank rate before you calculate.
If you agreed credit days in writing, interest starts the day after the agreed date, and the agreed period cannot exceed 45 days from acceptance. With no agreement, it starts on the appointed day, which is the day after 15 days from acceptance.
No. Section 23 of the MSMED Act says interest paid or payable by the buyer under the Act is not allowed as a deduction when computing income. Separately, section 43B(h) disallows the unpaid principal itself if it stays unpaid beyond the limit at year end.
Register on the MSME Samadhaan portal with your Udyam number, add the buyer and invoice details, and upload proof of supply and acceptance. The state Micro and Small Enterprises Facilitation Council takes up the case, first through conciliation and then arbitration if needed.
Courts have read section 16 as applying the bank rate in force at each monthly rest, so a long delay can span more than one rate. For a precise claim over many months, run the calculation in parts, one for each period with a different bank rate.
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