Read by Denym Bird5 min
Summary
Australia sets no statutory cap or set legal percentage rate for business-to-business late fees on invoices. A late fee or interest charge is only enforceable if it was part of your agreed credit terms before the invoice was raised, and the amount must be a genuine, proportionate attempt to cover your actual costs.
- No statutory cap: Australia has no set legal percentage cap or statutory rate for business-to-business (B2B) late fees.
- Must be proportionate: Penalty rates or fixed charges must be a genuine, fair attempt to cover your actual losses or administrative costs, not an unfair or punitive fine.
- Typical rates: Standard practice is 1% to 1.5% per month, or a flat $30 to $50 AUD administrative fee on smaller invoices.
Late payment is normal in Australia. A Xero Small Business Insights study of 150,000 small businesses found that 53% of invoices were paid outside the payment window, on average 23 days late.
Free: Late payment interest calculatorWork out the interest or fee on an overdue invoice.Is it legal to charge late fees in Australia?
Yes, it is legal to charge late fees in Australia. Australia has no set legal percentage cap or statutory rate for business-to-business (B2B) late fees, so the right to charge comes from your contract. Penalty rates or fixed charges must be a genuine, fair attempt to cover your actual losses or administrative costs, not an unfair or punitive fine.
Important: Your clients are only obligated to pay late fees charged on their invoices if they have previously agreed to your payment terms.
A fee that appears for the first time on an overdue invoice is not enforceable. A fee written into the terms the customer accepted before the sale is enforceable, and a court will uphold it as long as the amount reflects your loss rather than punishes the customer.
What are the rules for charging interest on late invoices in Australia?
The rules for charging interest on late invoices in Australia come from contract law, not a statute: no Australian Act sets a late payment interest rate for business invoices, so the rate must be in terms the customer agreed to before the invoice was issued.
Four rules follow from that. First, the term must be agreed in advance; a fee added to an invoice after the sale is not enforceable. Second, the amount must be a genuine estimate of your loss from late payment rather than a punishment, or a court can strike it out as a penalty. Third, how you chase the fee is governed by the ACCC and ASIC debt collection guideline (Regulatory Guide 96), so keep the communication proportionate. Fourth, large businesses report their payment times to small suppliers under the Payment Times Reporting Act 2020.
If the customer still does not pay, a claim of up to $20,000 can be filed in the Small Claims Division of the NSW Local Court, and the other states run equivalent small claims lists.
Can you charge a late payment fee on invoices?
Yes, you can charge a late payment fee on invoices if the fee was agreed in your contract or terms of trade before the invoice was issued and the amount is a reasonable estimate of your actual cost, not a punitive penalty. State the fee on the invoice itself as well, so the customer sees the consequence next to the due date, and apply it the same way to every customer on the same terms.
What is the best practice for charging late fees?
The best practice for charging late fees in Australia has three parts: put the fee in your contract terms before the first invoice, allow a grace period before interest starts, and waive the first charge for a good customer who pays promptly once reminded. A fee also changes behaviour: in Paidnice data, Australian businesses that start charging late fees get about 6 more invoices in every 100 paid on time than similar businesses that do not. See our late fee data.
Selecting reasonable contract terms
Late fee terms in Australia must be agreed by the client before the invoice is issued, so put them in the contract or terms of trade when you sign up a new client. Terms added today cannot be applied to invoices already outstanding. For existing clients, send the new terms and get agreement digitally or in writing before the next invoice. Read our Examples of Late Fee Policy Wording for clauses you can copy.
Selecting a fair grace period
A grace period in Australia is usually 30 days after the due date before interest starts, while a fixed late fee can apply from the first day overdue. Pick up the phone before the first fee lands, especially the first time you charge a client, and check the 30-day convention with a lawyer in your state before writing it into your terms.
Set the grace period against how late Australian invoices actually are. The average small business invoice was paid 6.7 days after its due date in September 2026, down from 9.4 days in January 2017 (Xero Small Business Insights). A 30-day wait before interest is many times the typical delay, so an account still unpaid when interest starts is a real collections case.
Source: Xero Small Business Insights, September 2026. See the full data on the Paidnice accounts receivable statistics dashboard.
Waive the fees the first time as an act of goodwill
The first late fee on a client’s invoice almost always gets a phone call, because many Australian clients are so used to paying late that the charge comes as a shock. If the client is otherwise good and pays as soon as they are reminded, waive that first fee. The fee has done its job, and the client rarely pays late again.
How much can I charge in Australia?
Standard practice in Australia is 1% to 1.5% per month, or a flat $30 to $50 AUD administrative fee on smaller invoices. Rates of around 10% a year are also common, and no Australian statute caps the figure; any rate is enforceable only if it is written into terms the customer agreed to before the sale.
| Invoice size | Fee type | Typical amount |
|---|---|---|
| Under AUD $1,000 | Fixed late fee | $30 to $50 per invoice |
| AUD $1,000 and over | Interest | 1% to 1.5% a month, or around 10% a year prorated daily |
| Any size | Admin fee on top of interest | $20 to $50, reflecting the real cost of chasing |
Fixed fees get paid more often. In Paidnice data, about 8 in 10 fixed late fees are paid, against about 6 in 10 percentage fees. See our late fee data.
Two ways to set interest. A per annum rate, prorated daily: 10% a year on a $5,000 invoice is about $1.37 a day, so $41 after 30 days. Or a flat monthly percentage, where 1% a month is the usual shape. State it on the invoice and in the contract, apply it after any grace period you promised, and keep it simple unless the contract says compounding.
The calculator at the top of this page does the daily maths for one or several invoices, and the New Zealand guide covers the same question across the Tasman.
What late fee should I charge on low invoice balances?
On invoice balances under AUD $1,000, charge a fixed late fee of $30 to $50 per invoice rather than interest. Interest on a $600 invoice at 1% a month is $6, which nobody notices; a flat $40 fee is visible on the statement and covers the real cost of chasing it.
What late fee should I charge on high invoice balances?
On invoice balances of AUD $1,000 or more, interest is the better lever: 1% to 1.5% a month, or around 10% a year prorated daily, written into your agreed terms. There is no statutory cap in Australia. Working the daily figure out manually for every invoice is the reason many SMEs never charge it, which is where automation comes in.
What mistakes cost Australian businesses their late fees?
Three mistakes leave late fees uncollected or open to dispute.
Waiting 30 days before interest starts. The Xero study above found invoices were paid 23 days late on average. With a 30-day wait, that average invoice never triggers interest. At 10% a year on a $5,000 invoice, 23 days is $31.51 ($5,000 × 0.10 × 23 ÷ 365).
Fix: apply a fixed fee from the first overdue day and start interest after a short grace period.
Writing one rate in the contract and charging another. A clause of 10% a year charges $41.10 on a $5,000 invoice 30 days late ($5,000 × 0.10 × 30 ÷ 365).
A system that applies 1% a month charges $50.00 ($5,000 × 0.01). The $8.90 difference is a charge the customer never agreed to, and it may give them a reason to dispute the rest.
Fix: state one basis in the contract and on the invoice.
Sending fee notices to an address that bounces. When a reminder bounces, the invoice is twice as likely to be unpaid 75 days after its due date (about 13 in 100, against 6 in 100).
Fix: check for bounced emails each week and phone the customer. Source: our analysis of invoice data from over 1,000 Paidnice customers. See warning signs of a late payer.
How can I set up and automate late fees?
You set up late fees in Australia by choosing the fee type, writing it into a policy your customers agree to, and applying it to every overdue invoice on the same rule. Paidnice applies that rule automatically inside Xero.
Xero has no native late fee setting. The Xero product idea "Add interest to late invoices" was posted on 29 March 2012, has 1,114 votes and the status Accepted, and Xero’s latest response on 7 July 2025 said there are no committed plans. That gap is why Australian businesses on Xero use a connected app to apply a proportionate, policy-based fee consistently instead of adding it manually.
Paidnice is accounts receivable automation for Xero, and the winner of New Zealand Small Business App of the Year at the Xero Global App Awards 2026. You set fixed or interest-based fees and group customers by payment terms or charge type. Customers see half as many late invoices in the first 30 days.
How to setup and implement your late fees
Step 1. Work out the type of late fee you'll charge
Decide whether you’ll charge a fixed or interest-based late fee and at what rate you will set it.
Step 2. Setup your late fee policy
Next, create a late payment policy and send it to your customers for them to agree to. For help with writing your policy, see our examples.
Step 3. Apply it every time.
Apply the fee to every overdue invoice on the same rule, manually or automatically. A fee charged to some customers and not others is the one that gets disputed.
Optional: automate your late fees with Paidnice.
Paidnice is accounts receivable automation for Xero. When an invoice goes overdue it applies your late fee or interest charge automatically, as a line item on the existing invoice or as a new penalty invoice, and keeps following up until it is paid. Credit control and debtor management, run for you.
See how Paidnice works, then sign up free with no card.
Please note that the information found in this blog serves to inform but does not constitute legal advice. For information specific to your industry, we recommend contacting a legal professional.
If you need more than a fee, see the full comparison of debtor management software in Australia. It also helps to know how your industry pays before you set a fee policy.
Paidnice features in this article
About the editorial team
Denym started Paidnice in 2022 after customers paying late left his own business short on payroll. He has led it to $1 billion collected on time across more than 1 million invoices, and writes about credit control, late fees and getting paid on Xero and QuickBooks.
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