How to charge interest on overdue invoices in Xero

Xero does not add interest to a late invoice. You work out the sum and raise it yourself, which gets slow once part payments are involved. Here is the manual way, the UK rule, and a way to do a batch as drafts.

The short answer

Work out simple interest on the unpaid balance, then charge it on a new invoice or as a new line. There is no interest function in Xero. The request on Xero's ideas board opened on 29 March 2012 and had 1,118 votes on 7 November 2026. Xero's reply of 7 July 2025 says "there isn't any committed plans around a function to add interest to invoices" and that a team has started looking at it. Its suggestions for now: state your late charges in the payment terms, add a line for the fee, add a mark-up, or find an app.

Charge it by hand

Check you can charge it. The rate has to come from your contract or the law that applies to you. This is general information, not legal or tax advice.
Find the dates. The due date and each payment date.
Work out the sum. Balance x yearly rate x days / 365, counting from the day after the due date. With part payments, split the period at each payment date.
Raise a new invoice. Same customer and currency, with a line naming the invoice, dates and rate. Agree the account and tax rate with your accountant. Xero suggests a new line on the invoice; a separate invoice leaves the original as it was.
Note the last date charged, so the next charge starts the day after.

Example. An invoice for £1,000.00 was due on 30 September, and £400.00 was paid on 10 October. Interest through 31 October at 8% a year: £1,000 for 10 days, then £600 for 21 days. (1,000 x 10 + 600 x 21) x 8% / 365 = £4.95.

If you are in the UK

GOV.UK sets statutory interest between businesses at 8% plus the Bank of England base rate. You cannot claim it if your contract sets a different rate. Its example divides by 365, and it says to send a new invoice if you decide to add interest. You can also claim a fixed sum: £40 on a debt up to £999.99, £70 up to £9,999.99, and £100 from £10,000.

Where doing it by hand stops

Every invoice has its own dates, and each part payment adds a slice to the sum. Nothing stops you charging the same days twice next month. A balance of zero can mislead too: an invoice closed by a credit note was not paid late.

Option: Creditloom

Creditloom is a web application for Xero users. Its Late interest tab does the sum and prepares drafts.

Choose the rule. A yearly rate you enter, on a 365 or 360-day year; a fixed fee per invoice; or the UK rule, 8% plus a reference rate you enter, with the fixed sum if you want it. Creditloom does not choose a rate.
Preview. Each overdue invoice shows its days, balance, rate and total, with the working one click away. Untick an invoice, leave out a customer, or change a row's rate. The preview writes nothing.
Confirm once. You choose the account and the tax rate; neither is preselected. Type the count, for example CREATE 12. You get draft sales invoices with a reference such as INT-INV-0042-2026-10-31, which you approve and send in Xero.

What it leaves out. An invoice closed by a credit note gets no interest. One closed partly by a credit note, or with a prepayment or overpayment applied, goes to a list to check by hand, with the reason.
Credit notes and currency. A credit note on an open invoice comes off the balance for the whole period. Nothing is converted to another currency.
Not twice. A later run starts the day after the last one charged. If an invoice changed after the preview, its draft is skipped.
Undo. For 30 days, type DELETE 12. Only what Xero still shows as a draft is deleted; an approved invoice is left alone and listed.
What it does not do. Approve or send anything, change the original invoice, send reminders, run on a schedule, or compound interest.
What we tested. On 7 November 2026 in a Xero Demo Company: part-paid, paid-late and credit-closed invoices, creating and deleting drafts. That company had no overdue foreign currency invoice, so that case has run only on our test data.

Disclosure. Atesen Software publishes this guide and makes Creditloom. The steps above work without it.

Price. The preview is free, and the first 5 drafts or allocations in each organisation are free. Then a 7-day pass at $39 with up to 300, $29 a month, or $290 a year. Prices exclude VAT and sales tax. FOUNDING40 takes 40% off your first payment until 30 November 2026, applied at checkout. A full refund is available within 14 days of that first payment if you have not used it. Checkout is by Paddle, from the Creditloom site.

See how Late interest works About Creditloom

Which route fits

One or two invoices: by hand, free.
A batch of interest only, when your reminders already work: a tool such as Creditloom.
A full collections package: Paidnice does far more than Creditloom, with reminders, statements, debtor reporting, late fees and interest and escalation workflows. It starts at 69 USD a month for up to 150 invoices. A Xero App Store search on 5 November 2026 also showed EasyInterest and Trove, which we have not reviewed.

Atesen Software is independent. Xero is a trademark of Xero Limited, and this page is not affiliated with or endorsed by Xero. Xero's ideas board, GOV.UK and the Paidnice pricing page were checked on 7 November 2026; these can change.

Questions about this guide: support@atesensoftware.com.