Interest on overdue commercial invoices is a legitimate and often overlooked component of debt recovery in Australia. Most businesses are theoretically entitled to claim it, almost none systematically do, and the reasons say more about practice than about the law. Here is the legal basis, the practical steps, and an honest assessment of when claiming interest makes sense.
The contractual basis
Interest on overdue amounts is claimable if your terms of trade include an interest clause. There is no general statutory right to commercial interest in most Australian states (unlike, for example, the UK Late Payment of Commercial Debts Act). If your terms do not specify interest, you may still be able to claim interest under section 100 of the Civil Procedure Act in court proceedings — but this is a discretionary award and may not cover the full period of delay.
The interest clause in your terms should specify: the rate (typically 1–2% per month, or the ATO shortfall interest rate, or Reserve Bank cash rate plus a margin); whether it compounds; when it begins to accrue; and whether it requires a demand or commences automatically on the due date.
How to calculate and claim interest
For each overdue invoice: identify the due date; calculate the number of days from the due date to the date of your demand (or the date of payment); apply the daily rate (monthly rate ÷ 30, or annual rate ÷ 365); and multiply by the outstanding principal. Add the interest to your demand letter as a separate line item, showing the calculation clearly.
Example: $10,000 invoice due 1 August 2026, unpaid as at 15 October 2026 (75 days overdue). At 1.5% per month: $10,000 × (1.5% × 75/30) = $375 in interest.
Why most businesses don't bother
Several practical reasons: calculating interest is time-consuming if done manually; many AR systems do not automatically compute interest; businesses are concerned that raising interest will inflame the customer relationship; and the amounts involved on a single invoice are often modest relative to the effort. These are real considerations. But for a business with a large debtors ledger, the aggregate interest that could be claimed is material — and interest that is claimed in a letter of demand often serves as an additional incentive to settle quickly.
Interest in proceedings
When a debt is litigated, courts in most jurisdictions can award pre-judgment interest either under the contractual clause or under the court's discretionary power. Including an interest claim in proceedings is generally worthwhile — it increases the judgment amount and signals to the debtor that the creditor is pursuing the full legal entitlement.
Contact Merion about including interest claims in your recovery demands — we include interest calculations as standard in demands where the terms support it.