Late Payment Interest Calculator

Late Payment Interest in Australia

There is no single mandatory late payment interest rate in Australia. Unlike some jurisdictions, Australian commercial law does not prescribe a default rate — the rate you can charge depends entirely on what is written in your payment terms or contract. Common commercial rates range from 8–15% per annum, with some industries and large creditors using rates as high as 18% pa. If your terms are silent on interest, your ability to charge it is significantly weakened, even if the debt is clearly overdue.

Simple interest is the most straightforward approach: interest accrues on the original outstanding balance only. Compound interest accrues on the growing balance — if you leave an invoice unpaid for several months and compound monthly, the amount owed increases faster than most debtors expect. For most trade credit situations in Australia, simple interest is more common and easier to defend if disputed. Some businesses apply a flat late fee instead (e.g. AU$50 per invoice) — this is simpler to administer but less proportionate on large invoices.

The most important step is making sure your payment terms clause is clear, communicated to customers before the first invoice, and included on every invoice you send. Courts have upheld interest claims where the clause was in the original agreement, but thrown them out where it was only added after-the-fact. If you are recovering a debt through NCAT, VCAT, or a small claims tribunal, a clearly documented interest rate and calculation makes your case materially stronger.

How to use this calculator

1. Enter the overdue invoice amount in AU$.
2. Set your annual interest rate (check your payment terms — if unsure, 10% pa is a common starting point).
3. Enter the original due date and today's date to calculate the number of days overdue.
4. Select simple or compound interest and review the total interest and amount owing.

What interest rate should I charge on overdue invoices?

There is no legally set rate in Australia. Most Australian businesses use between 8% and 15% per annum for commercial trade credit. The ATO's general interest charge (GIC) rate — around 11–12% pa — is a common reference point, but it applies to tax debts, not commercial invoices. Set a rate that is reasonable, commercially defensible, and clearly stated in your terms before the invoice is issued.

Simple vs compound interest — which should I use?

Simple interest is more common for trade credit and easier to explain to a customer or tribunal. Compound interest accumulates faster and is more appropriate where a debt remains unpaid for months or years, but must be clearly specified in your terms. Using compound interest without disclosing the compounding frequency in your terms could be challenged.

Can I charge late payment interest if it is not in my terms?

Generally no — or at least not reliably. If your terms do not include a late payment interest clause, you may still have a common law right to interest in some circumstances, but this is harder to enforce and is subject to court discretion. The practical answer is: update your terms now so that future invoices are covered.

Does GST apply to late payment interest?

No. Late payment interest is a financial supply and is input-taxed under the GST Act — it is not subject to GST. You do not add 10% GST on top of the interest amount. The original invoice amount may include GST, but the interest charged on the overdue balance does not.