Charging Interest on Late Payments — What’s Allowed Under Australian Law

If you’re a tradie or subcontractor waiting for payment that’s overdue by weeks or months, you’ve probably wondered: can I charge interest on this? The short answer is yes — but exactly how much, when, and under which circumstances depends on where you work and what your contract says.

Getting paid on time isn’t optional in construction. When a head contractor or principal delays payment, it affects your ability to pay your own crew, suppliers, and bills. Understanding your legal rights around interest is part of protecting your cash flow.

The Legal Framework: What Applies in Your State

Australia doesn’t have a single national law on late payment interest. Instead, each state has its own Security of Payment legislation, and the rules differ slightly:

• NSW — Security of Payment Act 1999 (SOP Act)
• Queensland — Building Industry Fairness (Protecting Payment) Act 2017 (BIF Act)
• Victoria — Security of Payment Act 2002 (SOP Act)
• Western Australia — Building Contracts Act 2004 (BCA)
• South Australia — Building Work Contractors Act 1995 (BWCA)
• ACT — Security of Payment Act 2009 (SOP Act)
• Tasmania — Building and Construction Industry Security of Payment Act 2009 (SOP Act)
• Northern Territory — Construction Contracts (Security of Payments) Act 2004 (CCSP Act)

On top of this, you may also have rights under the Australian Consumer Law (national) and general contract law. But the Security of Payment Acts are where construction-specific protections live.

Interest Under Security of Payment Legislation

Most Security of Payment Acts allow you to charge interest on late payments — but they set a maximum rate. This is called the “reference rate” and it changes quarterly.

In NSW, Victoria, ACT and Tasmania: You can charge interest at the “reference rate” plus a margin (usually 10 percentage points). As of early 2025, the reference rate is around 4.35%, so the maximum you could charge would be roughly 14.35% per annum on unpaid amounts. The exact figure updates each quarter, so check the relevant legislation or court website for the current rate.

In Queensland: The BIF Act 2017 is tougher on debtors. You have a strong statutory right to payment, and if a payment claim is not disputed within the timeframe set by the Act, it becomes payable within 5 business days. Interest rights are similarly protected.

In Western Australia, South Australia, and the NT: Similar reference-rate-plus-margin systems apply, though the exact percentages and calculation periods vary.

The key point: you don’t need a clause in your contract to charge this interest. The Security of Payment Acts grant it to you automatically. However, if your contract specifies a different interest rate — and that rate is lower — the contract rate applies instead.

Interest Under General Contract Law

If you’re not covered by a Security of Payment Act (rare in construction, but possible for some specialist work), you fall back on common contract law. Here, interest is only payable if your contract explicitly says so. If it doesn’t mention interest at all, you’re technically not entitled to charge it, even if payment is months overdue.

This is why it’s smart to always include an interest clause in your quotation or terms and conditions. Something simple like: “Payment is due within 30 days of invoice. Any unpaid amount will accrue interest at [reference rate + 10%] per annum from the due date until paid.”

How to Actually Charge Interest (and Get Paid)

Knowing your legal right and actually collecting interest are two different things. Here’s the practical process:

1. Invoice clearly. State your payment terms, due date, and interest rate upfront. Don’t hide it.
2. Chase the debt. Send a reminder email or letter when payment is overdue. Many debtors simply need a nudge.
3. Calculate and document interest. Keep records of the original invoice, due date, interest rate applied, and the total amount owing (principal + interest).
4. Write a formal demand. If they’re months behind, send a formal letter stating the amount owing, interest accrued, and the date by which you expect payment.
5. Consider a payment claim. If you work in a state with a Security of Payment Act and the debt relates to construction work, you can file a payment claim through the statutory process. This creates a formal record and often prompts resolution without needing further court action.
6. Escalate if needed. If the debtor ignores you, consider legal advice about recovery options (debt collection, court proceedings, adjudication).

One thing to note: filing a statutory payment claim under the Security of Payment Acts doesn’t automatically waive your right to interest. But the faster, lower-cost nature of adjudication means many debtors choose to pay or negotiate a settlement rather than let the claim go to a statutory adjudicator.

The Catch: Practical Reality

You have the legal right to charge interest, but collecting it requires the debtor to either pay voluntarily or lose a court case (or adjudication). If someone is already dodging you on the principal amount, they’ll likely dodge the interest too. Interest is a deterrent and a compensator — it discourages late payment and rewards you for the time value of money — but it’s not a magic bullet.

This is why prevention is better than cure. Build in clear payment terms upfront, chase invoices promptly, and use the formal tools (like statutory payment claims) early if you’re not getting results.

Late payment hurts small businesses. You’re entitled to charge interest under Australian law. Use that right — clearly, early, and consistently — and you’ll find most debtors take you more seriously.