Late payment interest in Australia: what can you actually charge?

Updated 3 August 2026 · By the Badger team

Short answer: in Australia you can generally only charge interest on a late B2B invoice if your contract or trading terms say you can — there's no automatic right to add it just because an invoice is overdue. Here's how it works, what a defensible rate looks like, and why interest is a deterrent more than a revenue line.

General information only, not legal advice. For significant debts or industry-specific rules, talk to a solicitor or your industry association.

When you can charge interest

• Your terms provide for it. The clean path: a late-payment interest clause in your quotes, credit application or terms of trade that the customer agreed to before the work. Added after the fact, it's very hard to enforce.
• A court or tribunal awards it. If a debt goes to judgment, courts can add interest at prescribed rates — each state publishes its own (typically a benchmark rate plus a margin).
• Industry regimes. Some sectors have their own rules — for example, security-of-payment legislation in building and construction provides interest on late progress payments. Check what applies to your industry and state.

What rate is reasonable?

A clause is only useful if it's enforceable, and a rate that looks like a penalty risks being struck out. In practice, Australian small businesses commonly use single-digit to low-double-digit annual rates — often expressed as a benchmark (such as the RBA cash rate or their own borrowing rate) plus a few percent, calculated daily on the overdue amount. That framing is easy to justify: it compensates you for the cost of the money, rather than punishing the customer.

How to make it stick

1. Put the clause in your terms of trade and credit application, and have customers accept them in writing before the first job.
2. Restate it on every invoice ("Overdue amounts accrue interest at X% p.a., calculated daily") — a reminder, not a surprise.
3. Mention it at the warning stage of your chase sequence, not in the first friendly nudge — our escalation ladder guide covers where it lands.
4. Apply it consistently or waive it deliberately. "Pay the principal this week and we'll waive the interest" is one of the most effective closes in credit control.

The honest truth about interest

Very few small businesses ever collect meaningful interest — and that's fine, because that's not what the clause is for. It's leverage: it changes the late payer's maths and moves your invoice up their pile. The thing that actually gets you paid is the boring one: consistent, courteous follow-up that starts within days of the due date, not a percentage buried in your terms. If nobody in your business has time to run those follow-ups, that's the problem accounts receivable software solves.