To generate an interest-only invoice, you first need to ensure you have interest enabled under the Client level. Please see here for more information.
You will then need to have the Enable Interest Only Invoices checkbox enabled under Invoice Settings. Please see here for more information.
Once all the above settings are in place, go ahead and generate a draft invoice against the relevant Client-Matter, and an interest only invoice should be generated if the invoice fits the Client level defined interest rules.
How is interest calculated?
Interest is calculated based on the percentage you assign (please see this article on how to turn interest on and how to assign that percentage). Interest is assigned at that percentage for anything that is due over their grace period time.
If interest is unpaid, it becomes a balanced owed, so you would get charged interest on top of interest because it is calculated on the balance owed.
For example, if your invoices give a 30 day grace period, then no interest is calculated within the first 30 days. On day 31, it would start to calculate interest on the unpaid balance owed at the percentage that you have assigned it.