Overdue invoice with a late fee
Invoice with a late fee: an overdue invoice and its interest
A late fee can only be charged if the client agreed to it before the work, and the invoice should say which term it relies on and how it is worked out. This example from a Sydney printer shows an overdue $4,092 invoice to a real estate agency, quotes the interest clause from the accepted quote, and bills 28 days of interest separately.
The invoice, page by page
The invoice as the client downloads and prints it.
The pricing, line by line
- Property brochures, A4 four page
- 2000 × $0.95
- Window cards, A3
- 120 × $6.50
- Corflute signs, For Sale
- 25 × $38.00
- Delivery
- 1 × $90.00
- Tax
- $372.00
- Total
- $4,092.00
Section by section
- Header
- The printer's name and contact details, invoice number INV-1190 and the OVERDUE stamp.
- Bill to and dates
- The agency's accounts contact, address and ABN, issued 1 September and due 15 September.
- Title
- Tax invoice, the client's purchase order and the supplier's ABN.
- Lines
- Brochures, window cards, corflute signs and delivery, each with quantity, unit price and GST.
- Totals
- Subtotal, GST, total and the amount still due.
- Notes and bank details
- That it is overdue, the interest clause, the interest to date and where it is billed, then the account.
When you can charge a late fee
In Australia you can charge interest or a fee for late payment only if the customer agreed to it before the work, usually in your quote, proposal or terms of trade. It should be reasonable: a fee far larger than the cost of being paid late risks being unenforceable as a penalty, and business.gov.au advises setting clear payment terms up front and explaining any late fee in them. This invoice relies on clause 6 of the terms the agency accepted with the quote, states the rate, and says interest runs from the day after the due date. The printer has also been using the firm reminder preset, so the client has had reminders on the due day and after it before any fee was mentioned.
How the amounts are worked out
Two thousand brochures at $0.95 are $1,900, 120 window cards at $6.50 are $780, 25 signs at $38 are $950 and delivery is $90: $3,720 before GST, $372 of GST, $4,092 in all. Interest at 10% a year on the $4,092 owed, for the 28 days from 16 September to 13 October, is $31.39, which is billed on the separate interest invoice INV-1214 and stated in the notes. Interest on a debt is a financial supply and generally carries no GST, which is another reason to keep it off the original tax invoice.
How to adapt this invoice
Put your late payment terms in every quote or proposal, so the client agrees to them before you start. Keep the rate modest and say how it is calculated. When an invoice goes overdue, send reminders first; the overdue status and the reminder presets do that automatically. If you then charge interest, issue it on a separate invoice rather than changing the original, and refer to it in the notes. Many small businesses choose not to charge the fee at all and use it to prompt payment, which is often enough.
What makes this invoice work
The fee rests on an agreed term
The notes quote clause 6 of the terms accepted with quote IPC-Q-0702: interest of 10% a year from the day after the due date. A late fee that was never agreed is hard to recover; one that points to a signed term is not.
The interest is worked to the day
The notes work the interest out: 28 days at 10% a year on the $4,092 due is $31.39. The amount is small and exact, which reads as fair rather than punitive and keeps the client relationship intact.
The original invoice stays clean
The invoice keeps its original lines and total, carries the OVERDUE stamp, and points to the separate interest invoice INV-1214. An issued invoice should not change after the fact, and keeping the interest apart makes both easy to reconcile.
Questions people ask
Can I charge a late fee on an invoice?
Only if the customer agreed to it before the work, for example in your quote or terms of trade, and the amount is reasonable. This example relies on an interest clause in the terms the client accepted with the quote, and quotes that clause in the invoice notes.
How much late fee is reasonable?
A fee that reflects the real cost of being paid late is safer than a large flat penalty, which may be unenforceable. This example uses interest at 10% a year, worked out to the day, which comes to a few tens of dollars on a four thousand dollar invoice.
Should I add the late fee to the original invoice?
It is cleaner to bill it separately. An issued invoice should stay as it was sent, and interest generally carries no GST while the original is a tax invoice. This example keeps the original lines and points to a separate interest invoice in the notes.
What happens when an invoice becomes overdue?
In OneCraft an unpaid invoice turns overdue the day after its due date and shows an OVERDUE stamp, and reminders continue on the chosen preset. This one uses the firm preset: reminders three days before, on the due day, and 2, 5, 9 and 14 days after, at most six in all.
Is GST charged on late payment interest?
Interest charged on an overdue debt is generally treated as a financial supply, which is input taxed, so no GST is added. A flat administration fee may be treated differently. Check the ATO's guidance or ask your accountant before setting up late fees.
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