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Part 4 of 7 · Late payment interest claimer series ~5 min read

Interest, compensation and costs: three claims, not one

Interest is the part everybody knows about and, for a business that raises a lot of modestly sized invoices, it is the smallest of the three. The one worth the most is a flat figure per invoice that has nothing to do with how late the payment was.

Key takeaways

  • Three separate entitlements: daily interest, a fixed sum, and costs above the fixed sum.
  • The fixed sum is per invoice and banded by invoice size, not by lateness.
  • On small invoices the fixed sum dominates and is claimed on day one.
  • Recovery costs are claimable only to the extent they exceed the fixed sum.
  • A part payment reduces the principal from that day, and interest follows it down.

One late invoice, three lines

A late invoice turned into three separate entitlementsA vertical chain inside an AWS account container, entered from a box on the left labelled A late invoice, past its due date with a pinned rate. Count the days runs from the late-from date to payment, or to today. Interest is the daily amount times the days late. Fixed sum is one per invoice, banded by size. Recovery costs cover only the part above the fixed sum, with a side exit reading none incurred: Usually nothing, because internal chasing does not count. Total shows three lines, each separately. A note says the three lines stay separate all the way to the letter, because a customer will concede one and argue about another, and a single merged figure loses that.AWS ACCOUNTA late invoicepast its due date,with a pinned rateCount the daysfrom late-from topaid, or to todayInterestdaily amount timesdays lateFixed sumone per invoice,banded by sizeRecovery costsonly the part abovethe fixed sumUsually nothinginternal chasingdoes not countnone incurredTotalthree lines, eachshown separatelyThe three lines stay separate all the way to the letter. A customer will concede one and argue about another, and a single merged figure loses that.
Fig 1. Five steps and one common exit. Keeping the components apart is worth more than the arithmetic that joins them.
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The fixed sum is not proportional to anything

It is a flat amount per late invoice, on a three-band scale by the size of the invoice: a smaller sum under a thousand pounds, a middle one up to just under ten thousand, a larger one at ten thousand and above. It does not scale with how late the payment was and it is not charged per week or per chase. One invoice, one sum, available the moment the invoice is late.

Which means that for a business raising a lot of invoices of a few thousand pounds each, the entitlement is dominated by a number that has nothing to do with interest rates at all. It is also the part that is easiest to calculate and hardest to argue with, because there is no judgement in it: the invoice was either late or it was not, and it was either above or below a threshold.

How the two components scale

Interest and fixed compensation on three invoice sizes at thirty days lateThree vertical stacked bars, each showing the entitlement on an invoice thirty days late at twelve point two five per cent, split into interest in teal and the fixed sum for the band in orange. An eight hundred pound invoice yields about eight pounds of interest and forty pounds fixed, totalling forty-eight. A four thousand eight hundred pound invoice yields about forty-eight pounds of interest and seventy pounds fixed, totalling one hundred and eighteen. An eighteen thousand pound invoice yields about one hundred and eighty-one pounds of interest and one hundred pounds fixed, totalling two hundred and eighty-one. A note says all three are thirty days late, the orange band barely moves, and the teal one grows with the invoice and with every extra day.GBP 0GBP 100GBP 200GBP 300GBP 400~GBP 48GBP 800 invoice~GBP 118GBP 4,800 invoice~GBP 281GBP 18,000 invoiceInterest, 30 days late at 12.25%Fixed sum for the bandAll three are thirty days late. The orange band barely moves; the teal one grows with the invoice and with every extra day.
Fig 2. Three invoice sizes, the same thirty days late. On the smallest the fixed sum is five times the interest; on the largest it is a third of it.

The break-even, in days

The clearest way to hold this is to ask how many days of interest the fixed sum is worth. On an eight hundred pound invoice it is a hundred and forty-nine days. On a four thousand eight hundred pound invoice it is forty-four. On an eighteen thousand pound invoice it is seventeen.

So for a small supplier chasing modest invoices that are usually a few weeks late, essentially the whole entitlement is the fixed sum, and the interest is a rounding error on top of it. That inverts the intuition the words carry — interest sounds like the main event and compensation sounds like a formality — and it changes which number is worth the effort of calculating carefully.

Costs above the fixed sum

The third component is the reasonable cost of recovering the debt, claimable to the extent it goes beyond the fixed sum rather than in addition to it. If a debt collection agency charged two hundred pounds and the fixed sum was seventy, the additional claim is a hundred and thirty.

The thing suppliers most want to claim here — their own time spent chasing — is the thing least likely to succeed. It is internal, it is hard to evidence, and it is what the fixed sum is there to represent. The system therefore only counts costs that have an invoice behind them from somebody else, which is a narrow rule that keeps the claim clean.

The events that change an entitlement after it starts

  • Part payment. Principal drops from that date. The daily amount is recalculated and a new segment starts; earlier days keep the old figure.
  • Credit note. Reduces the debt, sometimes from the original date. Interest on the credited part unwinds with it.
  • Payment in full. Stops the interest clock. It does not stop the entitlement, which is now a separate debt.
  • Dispute raised. Does not stop the clock by itself, but it is recorded, because it changes what you do next.
  • Six years. The claim is time-limited from when the entitlement arose. The system tracks the expiry per invoice.

Segments, not a single sum

Because part payments and credit notes change the principal mid-life, interest is stored as a series of segments rather than one figure: from this date to that date, this principal, this daily amount. The total is the sum of the segments and every segment names the event that ended the previous one.

That is more structure than a spreadsheet would use and it is the reason the number survives contact with a customer’s accounts payable team. When they say they paid half of it in April, the answer is already in the record rather than being a recalculation done under pressure with somebody on the phone.

The next post is the part the arithmetic cannot answer: which of these numbers you actually send, to whom, and when.

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