Can I charge interest on late payments?
For many small and medium size businesses, late payments are more than an irritation  they pose a very real threat to your businesss continued financial health. After all, many small businesses survive or fail based on their ability to maintain a healthy cash flow. Fortunately, there are many ways that you can pursue late payments. Find out a little more about charging interest for late payments on invoices, as well as the steps you can take to resolve the situation before it gets too serious. Before you start charging late fees on invoices, there are several steps you should take first. After all, settling the issue amicably is likely to allow you to continue doing business with the late payer in the future. Send a polite email  First off, send a short, friendly email inquiring about the status of your payment. In some cases, the invoice may simply have been sent to the wrong person, or the accounting team just needs a little nudge to get the ball rolling on your payment. Get in touch via telephone  If you dont receive an answer, your next course of action should be to make a call to the finance officer or accounts payable team. Mail a formal letter  If the first two steps dont work, you may need to issue a firm reminder by formal letter, demanding payment of your invoice. If none of these methods work, you should escalate by sending another formal notice stating that you will be charging interest on your original invoice. Yes. Charging interest for late payments on invoices is legal in Australia. Although its legal to charge interest on overdue invoices in Australia, that doesnt mean that you can charge an interest rate thats excessively high. Generally speaking, late fees on invoices should be capped at around 10% annually, with the interest broken down into a monthly charge. For example, if youre charging 10% interest on a $5,000 invoice, the annual interest rate would be $500, which means that the monthly interest would be $41.67. From that point onwards, you would charge an additional $41.67 every month until the bill is paid. However, you dont need to do the calculation yourself  the New South Wales government has an online late payment interest calculator that you can use to work out the amount of interest to charge on unpaid invoices. Simply enter the interest rate, the number of days by which the invoice is overdue, and the invoice amount, and you can calculate the total value of the interest youre owed. If youve cycled through all the above steps, started charging interest, and your client still hasnt paid, it may be time to start legal proceedings. You can do this by passing the bill over to a debt collection agency or hiring a solicitor to chase payment. Remember that this should only be done as a last resort, as its likely to spell the end of your working relationship with this customer. We can help  GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.