Check your contract and applicable law before adding interest to an overdue invoice. Business.gov.au says to include late payment interest in a demand only if the contract specified it. Confirm the agreed rate, start date, balance and calculation method, and have unclear terms reviewed before charging.[3][1]
Start with the contract
Building and construction work can have state-specific payment rights and claim steps. Check how interest applies to the contract and the state where the work was done before adding it to a demand.
Agree any lawful interest term before the work begins and make the calculation clear in the accepted quote or contract. An invoice footer should not be treated as proof that the customer agreed to a new interest charge.
Check the rules for the job
State and territory security of payment laws have their own claim steps and payment rules for construction work. Check the law where the work was done and get advice on whether the proposed interest term is enforceable before demanding it.
Sources[2]
Checks before you add interest
These are our recommended checks.
| Check | Question to answer | Where to find it |
|---|---|---|
| Agreed rate | Does the contract state a rate, and is it per year, month or day? | Accepted quote or contract |
| Start date | From which date does interest run (due date, after a grace period)? | Payment terms |
| Balance | Which amount attracts interest, with or without GST, and net of payments received? | Contract and payment records |
| Basis | Is it simple or compounding, and how are days counted? | Contract wording |
| Dispute | Is any part of the invoice disputed in writing? | Customer correspondence |
Simple-interest formula with placeholders
Use the figures and day-count basis agreed in your contract. This working formula is for simple interest; check any different contractual method before calculating a charge.
Interest = [overdue balance] x [agreed annual rate] x [days overdue] / [days in year used by the contract] Balance: $[amount] Agreed rate: [rate stated in contract] per [period] Interest runs from: [DD/MM/YYYY] to [DD/MM/YYYY] = [number] days Interest to date: $[amount] Contract clause relied on: [clause number]
Chasing the debt
Business.gov.au suggests a polite reminder first, then a letter of demand or a debt collecting service. It says chasing costs time and money and that sometimes the best option is to write off the debt. For a demand letter, it says to mention only action you are prepared to take and to attach the contract and invoices.
Common questions
- Can you legally charge interest on overdue invoices?
- It depends on your contract and applicable law. Business.gov.au says to include late payment interest in a letter of demand only if the contract specified it. Have unclear terms reviewed and check any state construction payment rules.[3][2]
- How do I calculate interest on a late payment?
- If your contract provides for simple interest, multiply the overdue balance by the agreed annual rate, by the days overdue, and divide by the number of days in the year the contract uses. Use only the rate, start date and day-count basis your contract states.[1][3]
Official sources
Checked 16 October 2026. Rules can change; use these sources to check the requirements for your job.
Related guides
- What should a tradie's overdue invoice letter say?
- How do I write a letter of demand for unpaid trade work?
- How do I make a Queensland security of payment claim?
Job workflows for plumbers.
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