Proposals · Glossary
Can you charge late payment fees in Australia?
Yes, an Australian business can charge late payment fees or interest if the customer agreed to them before the work, usually in the quote or contract, and the amount is reasonable. A fee added only on the invoice, or one far above the real cost of late payment, may be unenforceable as a penalty or an unfair contract term.
There is no general Australian statute that adds interest to a late commercial invoice, so a business only gets what its terms say. That makes the wording on the quote or proposal the real control.
Nuwan Madhusanka · Co-founder
4 min read · Published
It has to be agreed first
A late fee is a contract term, so it binds the customer only if it was part of the agreement. Put it in the quote, proposal or terms and conditions the customer accepts before work begins. A line that first appears on an overdue invoice is generally too late, because the customer never agreed to it. The business.gov.au guidance on payment terms suggests stating in your terms how you collect overdue payments, which is where the fee or interest rate belongs.
Reasonable, not a penalty
Australian courts will not enforce a payment that is out of all proportion to the legitimate interest it protects, which is the penalty doctrine. A late fee that roughly reflects the cost of chasing the debt and the lost use of the money is usually fine. A 25 percent surcharge for paying a day late is not. Many businesses use a simple interest rate, for example a few percentage points above the Reserve Bank cash rate, or a modest fixed administration fee.
Unfair contract terms
Since November 2023 the unfair contract terms regime in the Australian Consumer Law and the ASIC Act carries penalties, and it applies to standard form contracts with consumers and with small businesses. A term that causes a significant imbalance, is not reasonably necessary to protect the business and would cause detriment can be void. One sided late fees, especially where the business pays no equivalent for its own delays, are exactly the kind of term regulators look at, so keep them proportionate and clear.
Common mistakes
Adding a fee that was never agreed and then trying to enforce it is the most common. Setting a rate so high it looks punitive is the second. Charging late fees to a customer who disputes the work, before resolving the dispute, inflames things. And relying on fees instead of process: reminders before and after the due date usually recover more money, faster, than the threat of interest. The fee is a backstop, not the plan.
Where it shows up in the product
Terms are written as numbered clauses in the proposal, so a late payment term is agreed when the client accepts. Invoices carry a due date and turn overdue the day after it. Reminder presets send up to six reminders at least 20 hours apart: gentle on the due day and 7 days after, standard from 3 days before to 14 days after, and firm from 3 days before through 2, 5, 9 and 14 days after. Late fees themselves are not calculated automatically; add any agreed fee as an item on an invoice by hand.
Questions people ask
What interest rate can I charge on overdue invoices?
There is no single legal rate for commercial invoices in Australia. Choose a reasonable rate and state it in your terms before the work. Some businesses use a margin above the RBA cash rate; others use the court judgment debt rate in their state as a guide. Avoid rates that look punitive, because they invite a penalty or unfair term challenge.
Can I add a late fee to an invoice that is already overdue?
Only if the customer agreed to the fee beforehand. If your quote or contract did not mention late fees, adding one now is generally not enforceable. You can still recover the debt itself, and for future work you can add a clear late payment term to your quotes so it applies from the next job.
Do late fees apply to consumers as well as businesses?
They can, but consumer contracts face closer scrutiny under the Australian Consumer Law, including the unfair contract terms rules. A late fee in a standard form consumer contract must be transparent and reasonable. Many trades simply ask for payment on completion or use a deposit, which reduces the need for late fees with consumers.
Is a fixed late fee better than interest?
A fixed administration fee is simple and easy to understand, and it suits small invoices. Interest scales with the amount and the delay, which suits larger invoices. Some businesses use both, a small fixed fee plus interest after a longer period. Whatever you use, write the formula clearly so the customer can check the amount.
Does the UK late payment law apply in Australia?
No. The United Kingdom has a statute that adds interest and fixed compensation to late commercial debts automatically. Australia has no equivalent general law, so an Australian business relies on its own agreed terms. The Payment Times Reporting Scheme makes large businesses report how fast they pay small suppliers, but it does not add interest.
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