How Much Late Fee Can I Charge?

Is there a legal cap?

For commercial, business-to-business invoices, there is generally no statutory minimum or maximum late fee in Australia. The amount is whatever your agreed terms set — but "no fixed cap" is not the same as "any number you like". A fee that is wildly out of proportion to your actual loss risks being treated as an unenforceable penalty rather than a genuine pre-estimate of your costs, which means a court may simply refuse to uphold it. This is general information, not legal advice.

The safe target, then, is an amount that genuinely reflects your administrative cost of chasing the account plus the time value of the money you have been kept out of — not a punishment designed to sting the customer. A reasonable, defensible figure is also far more likely to be paid without argument, which is the whole point.

A reasonable flat admin fee

A flat administration fee covers the real cost of chasing an overdue account — the staff time, the reminder letters, the statements, the phone calls. Many small businesses set this at a modest figure charged per reminder letter, for example in the order of $50 to $150, and state the amount clearly in their terms of trade so the customer knows about it upfront. The fee is meant to recover a genuine cost, not to generate profit from someone paying late.

The guiding principle is to keep it defensible. A fee that plausibly reflects the actual work of processing an overdue account is easy to justify if anyone queries it; an arbitrary, large sum is not, and it may be struck down as an unenforceable penalty if it is ever challenged. When in doubt, err toward a figure you could comfortably explain.

A fair interest rate

For the interest component, a common and commercially fair approach is the RBA cash rate plus a margin of around 6 to 10 percentage points, which keeps the rate tied to the actual cost of money. A simple fixed rate such as 12 per cent per annum also works and is easier for customers to understand. Whichever you choose, the rate must be stated in your terms, because interest is only enforceable if it is set out in the terms of trade the customer agreed to. This is general information, not legal advice.

To see what a given rate actually produces on a real invoice, rather than guessing, use the late fee calculator. And for the underlying mechanics of working it out day by day, read how to calculate interest on a late invoice.

Keep it proportionate and charge it well

You can charge both a flat fee and interest at the same time if your terms allow it — for example, an admin fee per reminder letter plus daily interest accruing on the principal. The important thing is that your terms make clear the two apply together, in addition to one another, rather than being alternative remedies the customer can pick between.

When you do come to charge, issue the fee or interest as a separate tax invoice rather than quietly inflating the original one, calculate interest from the day after the due date, and keep the overall figure reasonable. A proportionate charge is far more likely to be paid without a fight — and far more likely to survive a challenge — than an aggressive one that looks like a penalty. Restraint here is not softness; it is what keeps the charge enforceable.