Xero doesn't add late payment interest or a fee to an invoice automatically, so when a client's direct debit fails you'll need to raise the late fee yourself, usually as a separate invoice. For a business client, you can normally claim statutory interest plus a fixed sum. The manual route works, but it depends on someone spotting the failure, working out the figure and sending it.
In this article
The short version
- Xero has no setting that adds late payment interest or a fee to an invoice automatically.
- After a failed direct debit, you raise the late fee yourself, usually as a separate invoice.
- Business clients that pay late can usually be charged statutory interest plus a fixed sum of £40, £70 or £100.
- The manual routine depends on someone spotting the failure and finding the time.
- Adfin retries failed direct debits free and can add statutory interest to overdue business invoices automatically.
Why Xero won't add the fee for you
When a direct debit fails, the invoice in Xero just stays unpaid. If you've set up reminders, Xero will keep emailing the client about it, but it has no setting that adds interest or a fee once an invoice goes overdue. Xero suggests workarounds instead: late payment terms on your invoice template, a late fee line worked out with its calculator, or an app.
So the fee is something you add. It's usually easiest to raise it on a new invoice, which leaves the original amount untouched and means the client's payment still matches the invoice they're expecting to pay.
What you can charge a business client
If another business pays you late, you can usually claim statutory interest at 8% over the Bank of England base rate, plus a fixed sum of £40, £70 or £100 depending on the size of the debt, unless your contract sets its own terms. This applies to business clients only, so leave individuals out of your late fee routine.
You might still wait for a retry before charging anything, because a no-funds failure often goes through a few days later and the interest on a short delay tends to be small.
How to add a late fee in Xero by hand
Here's a routine you can run each time a collection fails:
- Check why it failed. If a retry is due and the client has said the money's in, you may decide to wait.
- Work out the fee for the days the invoice has been late, at the statutory rate or the rate in your contract.
- Raise a new invoice to the same contact with a single late fee line, and quote the original invoice number in the description and the reference.
- Code it to its own income account, so you can see what late fees bring in.
- Send it with a short note saying what it's for, and give the client a way to pay both invoices now their direct debit has failed.
- Chase it like any other invoice, and reconcile it when the money arrives.
Each of those steps needs someone to notice the failure and find the time. In a busy month that's the part that slips.
How to charge late fees automatically when a direct debit fails
Adfin is a certified Xero app that collects direct debits and handles what happens after a failure. It retries failed collections free. You can also switch on a fallback, so it tries the client's saved card or sends them a payment link by email, SMS or WhatsApp to pay by card, Apple Pay, Google Pay or pay by bank.
If the invoice is still overdue, Adfin can charge statutory interest on it automatically, raised as a separate invoice in Xero, so you don't have to work anything out or remember to send it. You choose a grace period before fees apply, switch late fees off for a client you'd prefer not to charge, or waive them on a single invoice. They're meant for business clients only, and you decide which clients they're switched on for.
Automatic late fees are part of enhanced credit control, which costs 0.3% per paid invoice and only when you use it. Adfin's collection agents chase the overdue invoice within the rules you've approved, and the chasing stops as soon as the client pays.
Common questions
Can I add a late fee to the original invoice in Xero? You can add a late fee line to an unpaid invoice, but a separate invoice is usually tidier. The original amount stays the same, so the client's payment still matches it.
Can I charge late fees to clients who aren't businesses? Statutory interest and the fixed sums apply to business clients only. Keep individuals out of any late fee routine.
Should I wait for the direct debit retry before charging a late fee? It's up to you. You might only charge once retries have run out or the client hasn't been in touch. On a short delay the interest is likely to be small anyway.
Can I charge a late fee if the direct debit failed through no fault of the client? It's best not to. If the failure came from a problem with the mandate or the collection on your side, sort that out and collect the invoice without a fee.
Do I need to warn clients before charging a late fee? It helps to put your late payment terms in your contract and on every invoice. When you do charge, a short note with the fee invoice explaining what it's for avoids surprises.
How much does it cost to charge late fees automatically with Adfin? Automatic late fees are part of enhanced credit control, at 0.3% per paid invoice, charged only when you use it. Essential credit control, with reminders by email, SMS and WhatsApp, is free.
Sources
- GOV.UK - Late commercial payments: interest on late commercial payments (accurate as of October 2026) https://www.gov.uk/late-commercial-payments-interest-debt-recovery/charging-interest-commercial-debt
- GOV.UK - Late commercial payments: claim debt recovery costs (accurate as of October 2026) https://www.gov.uk/late-commercial-payments-interest-debt-recovery/claim-debt-recovery-costs
- Adfin Help Centre - How to use automated late payment fees to get paid faster (accurate as of October 2026) https://support.adfin.com/en/articles/15189136-how-to-use-automated-late-payment-fees-to-get-paid-faster
- Adfin - Pricing (accurate as of October 2026) https://www.adfin.com/pricing
