Summary
There is no statutory late fee percentage in New Zealand. You can charge interest or a fixed fee on an overdue business invoice only if your terms of trade say so and the customer agreed before the invoice was raised. If the debt goes to court, interest is set by the Interest on Money Claims Act 2016 instead.
- The percentage: A flat fee of NZD 15 to 50 on invoices under NZD 1,000, or interest of 1% to 2% a month on larger balances, is common practice in New Zealand and defensible when agreed in writing.
- The court rate: The Interest on Money Claims Act 2016 sets court-awarded interest at the average of the Reserve Bank's six most recent retail six-month term deposit rates plus 0.15%, compounding daily to that annual rate.
- The fix: Paidnice applies the agreed fee or interest to the overdue Xero invoice after your grace period, on the ledger, so it lands in the customer's payables and payment run.
Is it legal to charge late fees in NZ?
Yes, but only under a term your customer agreed to: New Zealand has no automatic statutory right to add interest or a fee to an unpaid business invoice, so the right comes from your terms of trade. With agreed terms, a fixed penalty fee or interest on the overdue balance is enforceable. Payment by the 20th of the month following invoice is the common New Zealand convention, and the late fee clock starts when the agreed term ends.
Consumer credit law does not apply here. The Credit Contracts and Consumer Finance Act 2003 regulates fees on consumer loans and credit cards to individuals; it does not govern a late fee on a business-to-business invoice. What governs your fee is contract law and whether a court would see the amount as reasonable, not a penalty.
Important: a customer only owes the fee if they accepted terms that state it. Get the terms signed at onboarding, or send the new terms to existing customers and keep their written agreement.
What does New Zealand law say about interest on unpaid invoices?
New Zealand law gives a business no general right to charge interest on a late commercial invoice; the right comes from the contract. If the unpaid invoice becomes a money claim in court, the Interest on Money Claims Act 2016 sets the rate: the average of the six most recent retail six-month term deposit rates published by the Reserve Bank of New Zealand, plus a 0.15% premium, with the interest compounding daily to that annual rate. The Act applies to civil proceedings started on or after 1 January 2018, and the Ministry of Justice publishes a civil debt interest calculator that does the sum.
The Disputes Tribunal hears claims up to NZD 60,000 and awards interest on the same basis under section 20 of the Disputes Tribunal Act 1988. Court interest runs from the day the claim is quantified, so a customer who ignores an invoice with no late fee term pays nothing extra until you file a claim.
How much can I charge for late fees in New Zealand?
There is no statutory cap on the late fee percentage for a New Zealand business invoice; the fee has to be reasonable and agreed in writing. A flat fee of NZD 15 to 50 on invoices under NZD 1,000, and interest of 1% to 2% a month on larger balances, is common practice and defensible.
| Invoice balance | Fee model | Common range | Why |
|---|---|---|---|
| Under NZD 1,000 | Fixed late fee | NZD 15 to 50 per invoice | Interest on a small balance is cents a day; a flat fee gets noticed |
| NZD 1,000 and above | Interest on the overdue balance | 1% to 2% a month | Tracks the cost of the delay and scales with the debt |
| Unpaid after a court claim | Court-set interest | Reserve Bank six-month term deposit average plus 0.15% | Set by the Interest on Money Claims Act 2016, not by you |
A late fee is leverage. Once the fee is on the invoice it sits in the customer's accounts payable and their next payment run, and the cheapest way for them to clear it is to pay the invoice. Set it high enough to be noticed and low enough that you can defend it as your real cost of waiting.
What is the best practice for charging late fees?
Best practice for late fees in New Zealand uses two models: a fixed fee for smaller customers, added after a set number of days overdue, and interest on the balance for larger customers, with the terms agreed at onboarding and a grace period before the first charge.
Include late fees in your terms of trade
The late fee clause belongs in the terms your customer signs at onboarding. For existing customers, send the new terms and ask them to agree, or build the terms into your ordering process. Our late fee policy wording examples give you clauses to copy. In Paidnice a policy runs per customer group, so 14-day and 20th-of-the-month customers can carry different fees at the same time.
Use a grace period
Invoice terms in New Zealand are short, so there is no need to wait 30 days before chasing. A phone call at day 15 secures most late invoices without a fee. A schedule that works for a 14-day invoice:
- Day 0: invoice sent with a 14-day payment window.
- Day 15: invoice unpaid, call the customer.
- Days 16 to 20: grace period.
- Day 21: payment still not received, late fee charged.
The grace period shows the customer you are reasonable and protects you if there is a genuine reason for the delay. In Paidnice the grace period is a setting: the number of days overdue before the fee or reminder applies.
Be prepared to waive the first one
The first late fee is the one customers query. If the customer is apologetic and pays, waiving that first fee usually secures on-time payment on the invoices that follow. Paidnice lets you waive or credit a late fee inside the app, so the Xero ledger stays tidy, and reporting shows late fees charged against late fees collected.
How can I set up and automate late fees?
Setting up late fees in New Zealand takes three steps: choose a fixed fee or an interest rate, write it into your terms of trade and get customers to agree, then apply it to each overdue invoice, by hand in Xero or automatically with Paidnice.
- Choose the fee type. A fixed fee for small balances, interest for large ones, or both.
- Write the policy and get agreement. Send the terms to every customer and keep the acceptance; see the wording examples.
- Apply it to overdue invoices. In Xero this is a manual line item on each overdue invoice, every time one goes overdue.
Xero has no native late fee or interest feature. The Xero product idea "Add interest to late invoices" was posted on 29 March 2012, has 1,114 votes, and its status is Accepted. Paidnice fills that gap: it is accounts receivable automation for Xero that applies your late fee or interest charge when an invoice goes overdue, as a line item on the existing invoice or as a new penalty invoice, and keeps chasing until the invoice is paid. Credit control and debtor management, run for you.
Three settings matter for a New Zealand policy: interest compounds by default (the "Include previous interest charges" toggle is on for a new policy, so turn it off for simple interest), fees can be applied in bulk to invoices that are already overdue, and the charge is calculated on the net balance if the customer holds credit. Sign-up is free with no card, and the first 20 actions are free. See how to get started with Paidnice.
This article informs and is not legal advice. For terms specific to your industry, speak to a New Zealand-qualified lawyer.
If reminders alone are not enough, see the full comparison of debtor management software in New Zealand.
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