Summary
- Xero statements can’t calculate or display interest. A statement lists invoices, credits and the balance. There is no field for adding accrued interest.
- The Xero workaround is a separate invoice. You calculate the interest, raise it as its own no-VAT sales invoice and it then appears on the statement as an invoice line.
- That workaround goes stale immediately. Statutory interest accrues daily, so the figure you raised on the 1st is wrong by the 2nd, and staying accurate means editing the invoice repeatedly in Xero until the customer pays.
- Trove puts the fee on the statement for you. You set up your late fee policy, and every statement shows the invoices and the fees accrued against them, recalculated at the point of sending.
- The fee can sit outside your Xero ledger. Held in Trove, it appears on the statement and only enters Xero if you choose to publish it in a draft or posted state.
Why a Xero statement can’t show late fee interest
A Xero statement is a list of documents and/or activity. It pulls the invoices, credits and payments on a contact’s account and displays them. It has no calculation layer, so there’s nowhere for interest to be worked out and nothing on the template to display it.
The workaround for displaying late fees on a statement in Xero
The standard approach is to raise the interest as its own invoice, which we cover in full in our guide to adding late payment fees to invoices in Xero. In short:
- Calculate what you’re owed
- Create a new sales invoice to the same contact and add the statutory interest and the fixed compensation fee as separate no-VAT line items
- Approve the late fee invoice.
That late fee invoice will now appear on the next statement automatically.
The problem is late fees accrue interest daily, so an interest invoice raised on the 1st of the month is incorrect by the 8th. Keeping a statement accurate means recalculating and updating that late fee invoice regularly.
Treasure by Trove takes the calculation off your hands for free. You key in or upload the original invoice, Treasure works out the interest and the compensation fee, and (if you connect Xero) raises the late fee invoice for you. However, it’s still up to you to send the statement to your customers.
For a handful of overdue accounts that’s fine. Across a full debtor ledger it can become overwhelming. Trove’s paid plans all offer this and come with a free 30-day trial so you can make sure it works for your use case. The paid plan also unlocks the ability to keep late fee invoices in Trove only but still display interest on statements when sent.
What a statement with late fee interest shows
When the interest is calculated for you, a statement lists all the relevant lines - invoices and late fees:
| Line | Description | Amount |
|---|---|---|
| INV-1042 | Invoice, due 12 May | £4,800.00 |
| INV-1042 (late fee) | Statutory late fee to 22 July | £179.71 |
| Balance due | £4,979.71.94 |
The interest lines are updated at the moment the statement is generated, so the figures are right on the day the customer opens it.
You should also ideally make clear which invoice the statutory late fee relates to for the avoidance of any doubt or challenges.
Putting the interest on the statement automatically
In Trove you set a late fee policy once. Then when an invoice becomes overdue, the late fee is raised and then updated every day as interest accrues.
Your statements then carry the interest without you doing anything each month. You choose the day the statement run goes out, Trove generates each customer’s statement with their invoices and accrued late fees fees, and sends it from your own email address.
The fee also doesn’t have to enter your Xero ledger to appear on the statement. It can be held in Trove, shown to the customer, and pushed into Xero only if and when you decide to formalise it. Some businesses use late fees as a way to nudge payment so it’s easier to keep them out of Xero and waive them once the customer pays.
Waiving a late payment fee once the customer pays covers how to communicate about this clearly.
Choosing which customers receive late fee statements
Statements can go to all customers in a workflow, or you can filter to customers above a balance you set, or exclude specific accounts entirely.
Using Trove, you can also apply different late fee policies to different customers, for example splitting long-standing customers out from new ones. Running two different late fee policies covers how to do this.
The audit trail of which statements were sent where
Every statement Trove sends is stored with the email address it went to and the date it was sent. Each one can be exported as a PDF, exactly how it was seen by the customer.
This is helpful in case things escalate. If an account eventually goes to a letter before action, you will need a running record of what was sent to and received from the customer. A run of dated statements showing the balance and the accruing interest, month after month, answers it in a way a folder of forwarded emails doesn’t.
Frequently asked questions
Can Xero add interest to a statement automatically? No. Xero statements list invoices, credits and payments, with no calculation layer and no interest field. The only way to get interest onto a Xero statement is to raise it as a separate invoice first.
Do I have to raise an invoice to charge statutory interest? Not to charge it. Your right to statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998 exists from the day the invoice becomes overdue, whether or not you’ve raised anything.
Does statutory interest carry VAT? No. Statutory interest and the compensation fee are outside the scope of VAT.
How much interest can I charge? 8% above the Bank of England base rate, charged daily as simple interest, plus a fixed compensation fee of £40, £70 or £100 depending on the invoice size. Treasure works out the exact figure for a given invoice and due date.
What if the customer pays after seeing the interest on the statement? You are still legally allowed to charge it. If you would rather waive it, you can also do this as a gesture of goodwill.
Getting this set up
The full guide to late payment fees in the UK covers what you’re entitled to charge before you set any of this up.
Treasure is a free late payment fee calculator that connects to Xero, with no card and no limits. If you want the fees on your statements without recalculating them each month, Trove runs a free 30-day trial or you can book a demo.
