Late Payment Interest Clause
A late payment interest clause lets you charge interest on overdue accounts — a fair incentive to pay on time, provided it's in your terms and reasonable.
What's included
- Understand why an interest clause needs to be in your terms
- See sample wording for daily-accruing interest
- Set a rate that is commercial and defensible
- Know how interest interacts with arrangements and settlements
- Recognise when to seek advice on the rate
6 min read
The clause
This is general sample wording for charging interest on overdue amounts. Replace each [placeholder] to suit your terms.
LATE PAYMENT INTEREST
(a) If you do not pay an invoice by its due date, interest accrues on
the overdue amount at [rate]% per annum.
(b) Interest is calculated daily from the day after the due date until
the overdue amount (including accrued interest) is paid in full.
(c) Interest is payable in addition to, and without affecting, our
other rights, including the right to recover costs and to suspend
supply.
(d) We may, at our discretion, waive or reduce interest in a
particular case without giving up this clause.
Worked example:
Overdue amount: [$10,000] Rate: [10]% pa
Daily interest = [$10,000] x [10]% / 365 ≈ [$2.74] per dayHow to use it
Interest you never agreed in your terms is hard to claim, so the clause has to be in the trading terms the customer accepted. Pick a rate that is commercial rather than punitive — an excessive rate invites argument and can be challenged. Show interest as a separate line on statements so it is transparent, and decide in advance whether you will pause it during a payment arrangement. To set a rate and payment period that hang together, use the free Payment Terms Generator.
Not legal advice
This is a general template and general information only — not legal advice. Whether a particular interest rate is enforceable depends on your contract and the circumstances. Have your interest clause reviewed by a lawyer before you rely on it.
Tips
- Charge interest only if it is in your accepted terms.
- Keep the rate commercial, not punitive.
- Show interest transparently on statements.
- Decide up front whether arrangements pause interest.
FAQ
Is there a maximum interest rate I can charge?
An unreasonable or punitive rate can be challenged. Aim for a commercial figure. This is general information, not legal advice — confirm before relying on a rate.
Can I add interest to a letter of demand?
Only if your terms provide for it. Otherwise the demand should reflect the principal. See the letters of demand material for more.
Should I pause interest during a payment plan?
That is a commercial call. Pausing it can encourage a customer to stick to the plan; keeping it running preserves the cost of delay. State which applies.
Templates are a head start — not legal advice
Customise to your business and have important documents reviewed. Need to recover a debt? We can help.