Late Payment Interest Calculator Australia

Yes, a business can charge interest on a late-paid invoice, but only if your payment terms allow it. The right to charge interest (and the rate) must be set out in your contract, quote, or invoice terms and conditions before the work is done. If you have not agreed a late-payment term with the customer, you generally cannot add interest after the fact. Make sure your standard invoice T&Cs state the interest rate and when it starts accruing.

There is no single legislated commercial late-payment rate in Australia, so the rate is whatever you have set in your payment terms (commonly 8% to 12% per year, or sometimes the court's pre-judgment interest rate plus a margin). The rate you choose should be reasonable rather than a penalty, courts can refuse to enforce a rate that looks punitive. A common approach is to peg it to the Reserve Bank cash rate plus a fixed margin, and to state the exact percentage on every invoice.

Simple interest is the unpaid amount multiplied by the annual rate, multiplied by the number of days overdue, divided by 365. For example, $5,000 overdue by 30 days at 10% per year is $5,000 x 0.10 x 30 / 365 = $41.10. Daily-compounding interest adds each day's interest to the balance before charging the next day, so it grows slightly faster: $5,000 x ((1 + 0.10/365)^30 - 1) = $41.27. Most small-business invoice terms use simple interest.

An invoice becomes overdue the day after its due date, the payment date stated on the invoice (for example, 'Net 14' means due 14 days after the invoice date). Interest, if your terms allow it, generally starts accruing from the first day after the due date, not from the invoice date. This calculator counts the days between the due date and the date the invoice was paid (or today if it is still unpaid).

You can add a fixed late-payment administration fee on top of interest if, and only if, that fee is set out in your agreed payment terms. As with interest, the fee must be a genuine pre-estimate of your costs rather than a penalty, or a court may not enforce it. Many businesses use a small flat fee (for example $10 to $25) to cover the cost of chasing payment, plus a modest interest rate for the time the money is outstanding.

Set clear payment terms up front, state them on every quote and invoice, and make paying easy with online card or bank payment links. Shorter terms (7 to 14 days), automated payment reminders before and after the due date, and deposits or progress payments on larger jobs all reduce overdue invoices. OneBookPlus can send invoices with built-in pay-now links and automatic reminders so you spend less time chasing money.