Cash flow issues represent one of the biggest threats facing small-to-medium enterprises (SMEs) globally. With late payments becoming the new norm, late fees and interest on overdue balances provide great motivation for prompt payment.
But depending on where your business is based, different restrictions may apply. In this article, we’ll offer some guidance on how much interest you can charge in different parts of the world and how this can be translated into your payment terms.
When determining how much interest you can charge on overdue invoices, keep in mind that the figure you settle on should be fair and reasonable.
Late fees are there to serve as a deterrent and shouldn’t be a source of profit. Remember too that while your country may allow you to charge interest, your customer must have agreed to your payment terms for it to be enforceable.
You’ll find links to further information in each of the country-specific sections listed below.
Please note that the information found in this blog serves to inform but does not constitute legal advice. For information specific to your industry, we recommend contacting a legal professional.
If you’re an American business interested in getting paid faster, charging late fees on overdue invoices is a great solution. But how much you can charge varies depending on where in the country you are based.
In the US, the % of interest you can charge for late payment varies per state but averages between 1.5-4% per month.
To ensure you’re following the legal guidelines in your state, we recommend reading How Much Can I Charge For Late Fees In The US? In this article, we cover each state in detail, giving you the relevant information to start charging late fees with confidence.
Canadian businesses are allowed to charge fixed penalty late fees or interest on overdue invoices at a rate that is deemed “reasonable”. While there is no specific guidance about how much interest you can charge a customer, it should not be exploitative.
The majority of Canadian businesses using interest-based late fees charge a monthly rate of 1.5-4%. If you are dealing with overdue invoices with balances of less than CAD $1000, it may be more effective to charge a fixed fee of CAD $20-50.
Read more about invoicing best practices in How Much Can I Charge For Late Fees In Canada?
Unlike many other parts of the world where interest is at the discretion of the parties in question, the UK has clear guidelines for charging interest on unpaid balances.
Businesses in the United Kingdom can charge interest at a rate of 8% + the Bank of England base rate per annum.
We recommend using interest-added payment terms for balances over £500 and a fixed fee model for lower-value invoices. This ensures that you are providing a suitable deterrent depending on the overall balance owed.
Find out more about charging fees as a UK business in How Much Can I Charge For Late Fees In The UK?
As a business in Singapore, you can determine your own preferred interest rate for overdue balances, providing your service doesn’t fall within the COVID-19 (Temporary Measures) Act.
The C19 Act regulates the fees that can be charged by certain industries, such as housing. However, the majority of Singapore businesses have no such restrictions.
Want to know more about the best practices for charging late fees in Singapore? We cover contract terms, fixed penalties and when to waive fees in How Much Can I Charge For Late Fees In Singapore?
New Zealand is fairly flexible in terms of what you can charge on overdue invoices. Although there is some guidance provided by the Credit Contract and Consumer Finance Act (CCCFA), the emphasis is on late fees and interest charges being charged at a rate that is considered “fair”.
Businesses in New Zealand can charge late fees on overdue invoices at a rate of no more than 0.8% of the total unpaid balance per day. The recommended maximum charge for a fixed penalty late fee is NZD $30. We recommend that New Zealand businesses apply fixed penalties to low-balance invoices and interest to high-balance invoices.
Learn about this and more in How Much Can I Charge For Late Fees In New Zealand?
Poor cash flow is proving to be one of the biggest challenges facing Australian businesses. In order to counteract the damage created by late payments, a growing number of businesses are charging interest on balances or applying a fixed penalty fee.
Australian businesses are entitled to charge interest on overdue balances at a rate of up to 10% per annum. While best practice dictates that interest should only be charged on high-balance invoices, lower-value invoices can have fixed penalty fees applied to provide a similar deterrent.
We discuss this in more detail in How Much Can I Charge For Late Fees In Australia?
Adding late fees to overdue invoices is gaining popularity with South African businesses as “late payment culture” continues to threaten livelihoods.
While restrictions exist to prevent landlords from overcharging late fees, there is little formal guidance for other South African industries.
We recommend following best practices when setting your late fee figures and following in the footsteps of other businesses.
In South Africa, most businesses charge late fees at a rate of 1.5-4% of the total invoice amount per month. While this doesn’t amount to much on a low-balance invoice, it can deter late payment on larger balances.
Read more about your business’s invoicing rights in How Much Can I Charge For Late Fees In South Africa?
Now that you know how much interest you can charge on overdue invoices, it’s time to put it into practice.
Paidnice was developed to seamlessly integrate with Xero invoicing software, allowing you to automate late fees with minimal effort.
Set interest rates or fixed penalties, then apply them to specific categories of clients and let Paidnice do the rest.
Intrigued? Watch Paidnice in action to find out how it works.
Please note that the information found in this blog serves to inform but does not constitute legal advice. For information specific to your industry, we recommend contacting a legal professional.
