"Three times the RBI bank rate, compounded monthly" is a statutory formula, not an intuitive number. Walking through one real calculation shows how quickly it grows relative to the outstanding invoice.
1. Start with the due date, not the invoice date
Under Section 15, the agreed payment period cannot legally exceed 45 days from the date of acceptance of goods or services. Interest does not start on the invoice date — it starts on day 46, whether or not the buyer signed an agreement promising a longer credit period.
2. The rate: 3× RBI bank rate, currently ≈ 20.25% p.a.
The Reserve Bank of India's notified bank rate is multiplied by three to arrive at the statutory annual rate — currently around 20.25%. Divided across twelve months, that is roughly 1.69% compounding every month, not a flat annual add-on.
3. A worked example
Take a ₹10,00,000 invoice, unpaid 18 months past its due date, at ≈20.25% p.a. compounded monthly:
- Principal outstanding: ₹10,00,000
- Monthly compounding rate: ≈1.69%
- Period unpaid: 18 months
- Amount owed at month 18: approximately ₹13,51,000
- Statutory interest accrued: approximately ₹3,51,000 — over a third of the original invoice
These figures are illustrative — the exact number depends on the RBI bank rate notified for the specific period and the precise number of days involved. The pattern that matters is structural: monthly compounding means the interest grows faster the longer a buyer delays, which is the deterrent Section 16 is designed to create.
4. Why this changes the settlement conversation
A buyer who assumes a delayed payment "only" costs them the original invoice amount is often unaware that the statutory interest, once formally claimed, can add a third or more to what they owe within a year and a half. Calculating and asserting this figure — not just the principal — is usually what moves a stalled payment conversation.