Many creditors simply write off the time value of late payment — they recover the invoice amount and move on. That is a reasonable choice on small or short-term accounts, but on significant debts or accounts that have aged considerably, interest can represent a material sum. Understanding when and how to claim it is worth the investment.
Two ways to claim interest
Interest on a commercial debt arises in two distinct ways, and the basis matters:
- Contractual interest — interest that accrues because your terms of trade say it does. This is the stronger and simpler basis: you set the rate, and it runs from the due date without any court involvement.
- Statutory interest — interest that a court awards on a judgment debt, or that a specific Act entitles you to claim. This arises after a judgment is entered, not before.
The two are not mutually exclusive, but they apply at different stages. Contractual interest is what you claim in a demand; statutory interest is what accrues on a judgment once proceedings succeed.
Contractual interest
If your terms of trade include an interest clause — and they should — it will specify the rate (for example, 1.5% per month on overdue balances) and the date from which it starts to run (typically the invoice due date). Provided the clause was incorporated into the contract before the account arose and the customer accepted the terms, interest at the agreed rate is part of the debt.
To claim it in a demand, calculate the interest from the due date to the date of the demand and state both the daily rate and the accruing total. A clear calculation prevents dispute and demonstrates that the figure is genuine. If you do not have an interest clause in your terms, you cannot rely on contractual interest — and the statutory options set out below require a court proceeding to access.
Statutory interest rates by state
Once a judgment is entered in your favour, interest accrues on the judgment debt at a statutory rate set by legislation. The principal Acts are:
- Victoria — Penalty Interest Rates Act 1983 (Vic): the penalty interest rate is set periodically by the Attorney-General and published in the Government Gazette. As at the date of this guide, the rate is set at intervals and currently reflects prevailing rates — check the current rate at the Department of Justice website before calculating.
- Queensland — interest on a judgment debt is governed by the Civil Proceedings Act 2011 (Qld), with the rate set by regulation.
- New South Wales — the Civil Procedure Act 2005 (NSW) governs judgment interest, with rates set periodically.
- ACT — the Civil Law (Wrongs) Act 2002 (ACT) and related court rules apply.
Statutory rates change. Before including statutory interest in any document, verify the current rate from the relevant court or government source.
How to calculate interest owed
For contractual interest, the formula is straightforward:
Daily interest = Principal × Annual rate ÷ 365
Multiply the daily rate by the number of days from the due date to the date of calculation. For example: a $20,000 invoice with an 18% per annum contractual rate that is 90 days overdue accrues $20,000 × 0.18 ÷ 365 × 90 = $887.67 in interest.
Show your working in the demand. A clearly set-out calculation is harder to dispute than a bare figure, and it demonstrates that the amount has been calculated rather than guessed.
Claiming interest in your demand
When including interest in a letter of demand:
- State the basis for the claim ("pursuant to clause [X] of our terms of trade").
- State the rate ("at the rate of 18% per annum").
- State the calculation period ("from [due date] to [date of this letter]").
- State the amount calculated and the daily accrual rate going forward.
Do not claim interest if you do not have a clear basis for it. A demand that overstates the amount owed — by including interest without a contractual or statutory entitlement — invites a dispute that undermines the whole recovery. If in doubt, claim the principal and let a recovery agent or solicitor advise on the interest separately.
Interest on judgment debts
Once a court enters judgment in your favour, the judgment debt carries interest at the statutory rate for the relevant jurisdiction. This interest runs from the date of judgment until the debt is paid — it does not require any further application. If enforcement takes months, interest continues to accumulate throughout.
This is a meaningful incentive for debtors to pay promptly after judgment. It is also a reason to pursue judgments when a debt is genuinely owed and the debtor has assets — the interest component increases the economic pressure to settle.
This guide is general information only. It does not constitute legal or financial advice. Statutory interest rates change periodically — verify the current rate before including it in any document. For advice specific to your situation, consult a qualified professional.