How do I calculate late payment penalties on an invoice?

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How do I calculate late payment penalties on an invoice?

Late payment is a major cash flow problem for companies, particularly small and medium-sized businesses. To protect themselves, the law allows late payment penalties to be invoiced from the day after the due date, without prior reminder. But you need to know how to calculate them correctly: the rate to be applied, the reference amount, the length of delay... All parameters you need to master to assert your rights without making mistakes.

What is the exact formula for calculating a late payment penalty?

To calculate a late payment penalty correctly, you need to understand the basic formula for determining the amount based on the amount due, the applicable interest rate and the number of days overdue.

Amount due x rate x number of days / 365: what it means

The calculation is based on a simple formula:

Penalty = (Amount due × Annual interest rate × Number of days late) / 365

This is what the formula means:

  • Le amount due is the basis on which you apply the interest rate.

  • Le annual interest rate may be legal or contractual (see next section).

  • Le number of days overdue corresponds to the time elapsed between the invoice due date and the day of actual payment (or calculation).

This calculation gives a penalty of proportional to the amount outstanding and the time elapsed. It is not necessary to prorate by month: the calculation is made in days.

Should I use the amount before or after tax?

Le montant TTC (all taxes included) should be used by default, unless your GCS specify that penalties apply only to the amount exclusive of tax.

In the majority of cases, the courts consider that the penalty relates to the amount incl. VAT This is the amount actually owed by the customer.

Please note: if VAT has not yet been declared (invoice not collected), this may have an accounting impact, but does not affect the calculation of penalties.

Which rate to choose: legal or contractual?

You have two options:

  • The contractual rate . freely set out in your General Terms and Conditions, it cannot be less than three times the legal interest rate . It must be explicitly mentioned in your contractual documents (general terms and conditions, quotation, order form, etc.).

  • Le legal rate . If there is no specific mention, the rate set by law applies. It is published every six months by the Banque de France.

The use of a contractual rate is recommended, as it is often more dissuasive and better valorizes your tied-up cash time.

What rates will apply in 2025?

To determine the amount of late payment penalties, you need to know the current interest rates. In 2025, several rates are applicable, depending on the context of the debt.

The legal interest rate

The legal interest rate is defined as biannually by the Banque de France . It applies automatically if no rate is specified in your GTC.

For the first quarter of 2025, two separate rates are published:

  • A lower rate for receivables between professionals, at 3,71 % .

  • A rate for receivables from individuals higher, at 7,21 %.

This rate is published published in the Journal Officiel and updated every January 1 and July 1. It also serves as a reference for interest on arrears and legal proceedings. Nevertheless, it remains less attractive than the increased contractual rate.

ECB rate increased by 10 points

In the absence of a contractual rate, article L441-10 of the French Commercial Code imposes a minimum rate equal to European Central Bank (ECB) key interest rate increased by 10 points .

This rate applies to business-to-business (B2B) relationships, unless otherwise specified in the GTC. In practice, this is often equivalent to an annual rate of around 11 à 12 % .

This mechanism aims to discourage delays by applying a substantial penalty, even without a specific contractual clause.

Where can I find the current half-yearly rates?

The legal interest rates and the current ECB rate are published on two official sources:

For the ECB rate, consult the refinancing rate applied on January 1 or July 1 of the year, available on the ECB (www.ecb.europa.eu) .

How much delay should be included in the calculation?

The calculation of late payment penalties is based on a precise period of time, to be determined according to the invoice due date. Here's how to set this period correctly, without any calculation errors.

Starting point: expired due date

The starting point for penalties is the day after the due date indicated on the invoice For example, if the invoice mentions a due date of March 15, penalties start to accrue on March 16.

It is not necessary to send an advance reminder for this period to start.

Should public holidays and weekends be excluded?

No, the public holidays and weekends are included in the calculation of days overdue.

We consider a classic calendar without deduction. Thus, a 20-day delay includes all consecutive days, whether working or not .

This simplifies the calculation, but can quickly increase the amount due if payment is delayed during vacations or bridging periods.

Should the penalty be indicated in the contract or invoice?

For late payment penalties to be indisputable, it is essential that they are explicitly mentioned in commercial documents. Here are the obligations to respect and the best practices to adopt.

Mandatory information on B2B invoices

Between professionals, late payment penalties must be mentioned on each invoice, in accordance with article L441-10 of the French Commercial Code.

It must specify the applicable interest rate in the event of delays, as well as the flat-rate indemnity of €40 for collection costs .

Failure to do so may result in an administrative fine of up to €75,000 for an individual, or 2 millions € for a company.

Here's an example of the wording:

"Any delay in payment will result in the application of penalties calculated at the rate of 12% per annum, as well as a fixed indemnity of €40 for collection costs."

The clause to include in the quotation

To further secure your receivables, you can also include this clause in the quotation or commercial contract . This avoids any later disputes and reminds the customer of his obligations from the very first stage of the relationship. clear, legible and unambiguous . It justifies the application of penalties without further negotiation.

Don't forget to include it in your Terms and conditions of sale which must be accepted before placing an order.

Examples of penalty calculations

There's nothing like practical examples to help you understand how to apply late payment penalties. Here are two representative examples, accompanied by a summary table.

Case 1: €1,000 incl. VAT unpaid for 20 days

Assume an invoice of 1 000 € TTC issued between professionals, with a increased legal interest rate of 12%, and a 20 days .

The formula is : (1 000 x 12%) x (20 / 365) = €6.58

This amount is to be added to the fixed indemnity of €40 if applicable.

Case 2: €12,000 excl. tax, 12% contractual rate, 45 days late

For a bill of 12 000 € HT with a 12% contractual rate provided for in the GCS, and a delay in 45 days the calculation yields : (12 000 x 12 %) x (45 / 365) = €177.53

Here, the amount excluding VAT is used, as is often the case between professionals.

Summary table of formulas for different cases

The following table summarizes the two previous examples to help you compare the two situations:

Late payment penalties and flat-rate collection fees

In addition to late payment penalties, the law provides for a fixed indemnity to cover collection costs. Here's what you need to know to apply it properly.

The €40 to be invoiced systematically

Since 2013 with the Decree 2012-115 a flat-rate indemnity of €40 is due by operation of law in the event of late payment between professionals (B2B). It is automatically added to late payment penalties, with no need to justify the costs incurred.

This amount must be indicated on the CGV and factures to be payable without discussion.

When to invoice compensation? What are the exceptions?

The €40 allowance is payable from the first day of delay without prior reminder. However, it does not apply to not to individuals nor to government agencies .

In addition, if the collection costs exceed this amount, the creditor may request an additional fee. complement subject to justification (collection service provider, lawyer, etc.).

Hero helps you get paid without waiting for penalties

Late payment penalties compensate for late payments, but they don't improve your cash flow in the short term. That's where Hero . By offering you immediate advance on invoices With Hero, you don't have to wait for payment or reminders. You stay focused on your business, while securing your collections.

In short, the calculation of late payment penalties is an effective way of protecting your receivables and guaranteeing timely payments. However, to avoid errors and guarantee the validity of these penalties, you need to comply with legal and contractual rules. If you want to optimize your receivables management and obtain faster payments, solutions such as Hero's cash advance can offer you valuable support.