Yes, you can charge interest on overdue invoices in South Africa. If your contract states a rate, that rate applies; if it does not, the prescribed rate of interest under the Prescribed Rate of Interest Act applies once you have made a formal demand for payment. The prescribed rate is 10.25% a year from 1 March 2026.
Late payments cost South African SMEs both cash and hours. A Xero survey of more than 500 South African SMEs found that 91% of companies were owed money at any given time, at an average of nearly R100,000 per business.
Of the businesses surveyed, 20% reported struggling to pay their own suppliers because of late-payment cash flow gaps, and 17% had considered declaring bankruptcy as a result. Accounts receivable staff, bookkeepers and owners then spend hours each week chasing the same invoices. A late fee agreed in your terms is the leverage that changes the customer’s behaviour, which is why many South African SMEs now charge one.
Yes, you can legally charge interest on overdue invoices in South Africa, provided you follow specific legal requirements: the rate must be agreed in your terms, or, where no rate is agreed, claimed at the prescribed rate under the Prescribed Rate of Interest Act after a demand for payment.
For business-to-business (B2B) contracts, the law does not set out what you may charge in late fees. The fee must be reasonable, agreed before the work starts, and written so the customer can see how it is calculated. A late fee that the customer never agreed to is legal to ask for but not enforceable, so the payment terms in your contract do the real work.
No, you do not need a written contract clause to charge interest on an overdue invoice in South Africa. Common law gives you the right to claim mora interest once a payment is overdue and you have made a formal demand, at the prescribed rate of 10.50% a year where no rate was agreed. A contract with a stated rate is stronger and clearer for your customer, and it lets you charge more than the prescribed rate, so put the rate in writing whenever you can.
The best practice for charging late fees in South Africa has three parts: put the rate in your contract terms before the work starts, allow a grace period of about 30 days before interest runs, and waive the first charge for a good customer who pays as soon as you ask.
Late fee terms in South Africa must be agreed by the client in writing before any work is undertaken, and the easiest time to do that is when onboarding a new client. A clause such as “payment terms are net 30 days, subject to a 2% monthly late payment fee” states the rate, the trigger and the calculation in one line. For existing clients, ask them to sign updated terms or add the clause to your ordering process. Learn more about contract terms, including examples that you can use here.
A grace period in South Africa is usually 30 days after the due date before interest is charged, while a fixed late fee may be applied sooner, say after 14 days of non-payment. The grace period shows the client you are reasonable, which makes them less likely to push back when the fee is applied, and it protects you when there is a genuine reason for the delay, such as an EFT held up by a bank.
The first late fee on a customer’s account usually gets a phone call. If the customer is otherwise good and pays as soon as you ask, waive that first charge. The fee has done its job, and the customer rarely pays late again.
In South Africa you can charge the prescribed rate of interest, 10.50% a year from 1 July 2026, on any overdue invoice where no rate was agreed, or a higher contract rate, typically 1.5% to 2.5% a month (18% to 30% a year), where the customer agreed to it in writing.
The prescribed rate is the South African Reserve Bank repo rate plus 3.5%, but it moves with a lag. When the repo rate changes, the new prescribed rate applies from the first day of the second month after the change, and the Minister publishes it by Gazette notice. Notice 3887 of 2026 set 10.25% from 1 March 2026, and the rate rose to 10.50% from 1 July 2026. A calculator that adds 3.5% to the repo rate on the day of a change will run ahead of the rate you can actually claim.
| Invoice size | Fee type | Typical amount |
|---|---|---|
| Under R10,000 | Fixed late fee | R100 to R150 per invoice |
| R10,000 and over, rate agreed | Contract interest | 1.5% to 2.5% a month |
| R10,000 and over, no rate agreed | Prescribed rate after demand | 10.50% a year |
The purpose of the fee is to motivate your clients to pay on time, not to bring added revenue into your business, so set it between nominal and exorbitant and apply it the same way to every customer on the same terms.
On invoice balances under R10,000, charge a fixed late fee of R100 to R150 per invoice rather than interest. Interest at 10.50% a year on a R5,000 invoice is about R44 a month, which nobody notices, while a flat R120 fee is visible on the statement and covers the real cost of chasing it.
On invoice balances of R10,000 or more, interest is the better lever. The Prescribed Rate of Interest Act gives you 10.50% a year without any clause, and a contract rate of 1.5% to 2.5% a month is common in South African business practice where the customer agreed to it. State in the contract how the interest is calculated, whether it is simple or compounding, and when it starts.
Working the daily figure out for every overdue invoice is the reason many SMEs never charge it, which is where automation comes in.
You set up late fees in South Africa by choosing the fee type, writing the rate 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 or interest setting, so a Xero user either adds each charge by hand or connects an app. 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. It adds fixed or percentage late fees to the existing invoice or as a separate invoice, and can charge statement interest on a customer’s whole overdue balance.
One detail no legal guide covers because it is software behaviour, not law: Paidnice’s Adjust for Credit setting calculates statement interest on the net balance after any credit on the account, so a customer with an unapplied credit note is never charged interest on money they do not owe. Customers cut their average wait for payment in half within 30 days.
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. Set up 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, by hand 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 your debtors book needs more than a fee, see the full comparison of debtor management software in South Africa.
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