Can you charge late fees on invoices in Australia? Rules and wording

Generally yes, provided the late fee was part of the terms the customer agreed to before the work started. A charge that first appears on an overdue invoice is not a term of anything. It is a number added after the fact, and it is the one that gets argued about instead of paid. business.gov.au’s payment terms page sets payment terms out as the rules you state up front, including how you collect overdue payments, which is the whole mechanism in one line: agreed in advance, stated in figures, applied the same way every time.

This page is evergreen and deliberately carries no rate, because the benchmarks move and the agreement is what does the work. What follows is general information rather than legal advice, and for terms you intend to rely on in a dispute, a lawyer is the person to read them.

General information, not tax advice. The ATO is the authority - see ato.gov.au or ask a registered tax or BAS agent.

What “agreed up front” actually means

The fee has to live somewhere the customer saw and accepted before the work began. In practice that is one of three places: on the quote they signed or replied yes to, in an engagement letter or contract, or in a set of terms and conditions the quote referred to and that you actually sent them. A line in the invoice footer is the weakest version of all three, because the customer first meets it after the job is done and after the money is owed.

Two habits make the difference between a term and an assertion. Keep the acceptance: the email saying “happy to go ahead”, the signed page, the date and time. And use one set of terms rather than a different set per job, because a term you cannot produce is a term you do not have.

State the fee in figures, not in feeling. “Interest may be charged on overdue accounts” is unusable to both of you, because neither can compute it. “14 days from date of invoice, then interest at a stated percentage per annum calculated daily” is a shape two people can agree on, once you fill the percentage in from the benchmark below. The rest of the getting-paid mechanics are in how to get invoices paid on time.

Business customers and household customers

The customer type changes what sits on top of your terms.

For business customers, the relevant layer is the unfair contract terms regime. The ACCC’s contracts guidance explains that the protections apply to standard form contracts, which is what a reusable set of trading terms is, and that since 9 November 2023 a small business is covered if it has fewer than 100 employees or makes less than $10 million in annual turnover. The test the ACCC describes for whether a term is unfair has three parts: it causes a significant imbalance in the parties’ rights and obligations, it is not reasonably necessary to protect the legitimate interests of the party it benefits, and it would cause financial or other harm if enforced. Whether a particular term is unfair is decided by a court, not by the ACCC and not by anything on this page, so none of this settles it for your contract.

For household customers, the Australian Consumer Law sits over the top as well, and the plain version of the risk is that a fee looking like punishment tends to attract more scrutiny than one looking like the cost of chasing the money. A charge that bears some relationship to what late payment actually costs you is a different proposition from a flat $150 for being a day late on a $400 invoice. Where a customer disputes a fee, your state or territory consumer affairs body and a lawyer are the right places to take it, not a template.

Flat fee or interest, and how much

A flat fee is a single administration charge applied once the account passes the due date. It is simple to explain and simple to calculate, and it stops growing, which makes it easier to defend on small invoices where interest would round to nothing.

Interest accrues, usually stated as a percentage per annum calculated daily on the outstanding balance. It scales with the size and age of the debt, which is the honest reflection of what a long overdue invoice actually does to you.

No law sets the number. What is commonly seen in Australian trading terms is a rate a few percentage points above the Reserve Bank’s cash rate, on the reasoning that the fee tracks the cost of money rather than a figure picked from the air. The current cash rate target is published by the RBA on its cash rate page, so check the current figure there before you write a rate into a template, and reconsider it when the benchmark moves.

Run the arithmetic before deciding it is worth it. On a $900 invoice 30 days past due, a rate in that range produces a few dollars. The fee is not a revenue line. It is a stated consequence, and its value is almost entirely in existing before the invoice goes out.

Wording you can adapt

A workable clause names the due date, the trigger, the rate, the basis and what happens to recovery costs:

Payment terms

Payment is due 14 days from the date of the invoice.

Amounts unpaid after the due date accrue interest at [X]% per annum, calculated daily on the
outstanding balance from the due date until the amount is paid in full.

Where an account remains unpaid after 30 days, reasonable costs of recovery may be charged in
addition to the amount owing.

These terms form part of the quote and apply to all work performed.

Fill the rate in, do not leave the bracket. Send the terms with the quote rather than pointing at a page nobody opens. And have a lawyer look at the wording before you rely on it, particularly the recovery-costs line, which is the part most likely to be tested.

When to charge it, and when to waive it

Consistency is what gives the clause its force. A fee applied to some customers and not others is easy to characterise as arbitrary, so decide the policy once: applied after a set number of days, with a short list of situations where it is not.

Three situations where waiving is the better commercial answer. When the delay is yours: the invoice went to the wrong address, the purchase order number was missing, the customer asked for a breakdown and did not get one. When the customer is genuinely disputing the work, because a fee on a disputed invoice turns an argument about quality into an argument about money and you will have both. And when a long-standing client is a week late for the first time in four years, where the fee costs more in goodwill than it collects. Saying the waiver out loud is what makes it worth something.

GST on a late fee

The honest answer is that it depends on the facts, and the ATO says so directly. Issue 3.6 of the GST issues register for financial services asks whether a late payment penalty is subject to GST and answers that this will depend on the facts of each case. Where the late payment penalty is consideration for a financial supply, which the ATO says is indicated where the charge is commercial compensation based on the time value of money, that is, interest, there is no need for the supplier to account for GST on it. Where it is not consideration for a financial supply and it has the effect of changing the consideration for the original sale, it can instead give rise to an adjustment event.

Which side your particular clause falls on depends on how it is drafted and what the charge is compensating for, so a registered tax or BAS agent is the person to confirm how GST applies to your wording before you start issuing the fee.

How Apsis helps

Apsis stores your payment terms once alongside your ABN and trading name, and prints them on every quote and invoice, so the terms the customer accepts at quote time are the terms on the document they are asked to pay. The invoice list flags overdue invoices and filters by status, so the accounts past their due date are a filter rather than a monthly reconstruction, and each invoice keeps its sequential number when it is voided. Quotes and invoices are both on the free plan, which covers 5 clients and 20 invoices a month; automatic invoice reminders are on the paid plan.