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.

Worked example: interest claim on an overdue trade account

A Brisbane steel distributor supplies AU$24,800 of structural steel to a builder on 30-day terms. The invoice is due 15 March but remains unpaid at 30 June - 107 days overdue. The distributor's terms state 10% pa simple interest on overdue amounts:

The difference between simple and compound is small over 107 days (AU$14), but on longer-running debts or higher rates the gap widens substantially. The distributor includes both the interest calculation and a reference to the contract clause in the collection letter, giving the builder a clear breakdown of what is owed and why. If the debt goes to QCAT, the documented interest clause and calculation form part of the claim.

What should your payment terms clause include?

A late payment clause that will hold up needs four things: the rate (e.g. 10% per annum), the calculation method (simple or compound, with compounding frequency if compound), when interest begins (from the due date, not the invoice date), and a statement that the clause was agreed before the supply. Courts have rejected interest claims where the rate was only printed on the back of invoices and never referenced in the original agreement. If you use a credit application form, include the interest clause there so it is signed before the first order.

Settlement penalty interest calculation

Settlement penalty interest applies when a contractual settlement date passes and one party has not paid. It is most common in two contexts: property settlements (where the buyer fails to settle on the agreed date) and construction progress claims (where the principal or head contractor pays a progress claim late). The calculation method is the same as late payment interest on a trade invoice - daily rate multiplied by outstanding amount multiplied by days late - but the rates and legal frameworks differ.

For property settlements in most Australian states, the standard contract of sale specifies a default interest rate if settlement is delayed. In NSW and Victoria, the standard rate in the Law Society/REIV contracts is typically 10% pa. The vendor is entitled to this interest from the contractual settlement date to the actual settlement date, calculated daily on the unpaid purchase price. The buyer's solicitor or conveyancer usually calculates the penalty and adds it to the settlement adjustment statement.

For construction, the Security of Payment legislation in each state gives contractors and subcontractors a statutory right to interest on late progress claim payments. In NSW, the Building and Construction Industry Security of Payment Act 1999 allows interest at the rate prescribed by regulation (currently tied to the Supreme Court rate). In Queensland, the Building Industry Fairness (Security of Payment) Act 2017 provides a similar mechanism. Even where a contract does not include a penalty interest clause, these statutes override the contract and give the payee the right to charge interest from the date the payment became due.

Worked example: settlement penalty interest on a late progress claim

A Wollongong formwork subcontractor submits a AU$86,400 progress claim (inc GST) on a commercial project. The head contractor is required to pay within 15 business days under the subcontract. Payment is due 12 May but does not arrive until 9 June - 28 days late. The subcontract specifies penalty interest at 12% pa:

The subcontractor includes the AU$795 penalty interest on the next progress claim as a separate line item, referencing the contract clause and the original claim number. If the head contractor disputes the interest charge, the subcontractor can issue an adjudication application under the Security of Payment Act - the statutory interest entitlement applies regardless of whether the head contractor agrees. For disputed claims, a formal invoice dispute letter documents the position. Track overdue progress claims in an AR aging report to catch late payments before they compound.

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.

Frequently asked questions

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.

How is settlement penalty interest calculated on a late property or construction settlement?

Settlement penalty interest is calculated on the outstanding balance from the contractual settlement date to the actual settlement date, using the rate specified in the contract. In most Australian state contracts for property, the default rate is 10% pa simple interest. Construction contracts often specify penalty interest on late progress claim payments - the Security of Payment Act in each state gives contractors the right to interest on late payments even where the contract is silent, typically at a rate set by regulation. Calculate the daily rate (annual rate divided by 365), multiply by the outstanding amount and the number of days late.