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

If you’re a tradie or subcontractor waiting for payment, you’ve probably wondered: can I charge interest on late invoices? The short answer is yes—but only under certain conditions, and the rules vary depending on where you are and what contract you’ve signed.

Late payments in construction are rife. Builders drag their feet. Head contractors delay. And while you’re sitting on unpaid invoices, your bills keep coming. Understanding your legal right to charge interest can help you recover money faster—or at least make the cost of waiting clearer to the person who owes you.

What the Security of Payment Acts Say

Australia’s Security of Payment legislation exists in most states and territories. The most commonly cited are the NSW Security of Payment Act 1999, the QLD Building Industry Fairness (Security of Payment) Act 2017, and the VIC Security of Payment Act 2002. These laws protect subcontractors and contractors by setting out strict payment timelines and dispute processes.

But here’s the thing: the SOP Acts don’t automatically give you the right to charge interest. They set out when payment must be made and what happens if someone doesn’t pay on time. The question of whether you can charge interest depends on your contract and, in some cases, general contract law.

If your contract is silent on interest, you may still be able to claim it—but you’ll need to show one of these applies:

• Expressly written into the contract. The simplest path: your contract says “interest accrues at X% per annum on overdue amounts”.
• Implied by the nature of the work or industry custom. Less common, but sometimes construction contracts have an understood industry rate.
• Under the Australian Consumer Law or the Penalty Interest Rates Act (state-based). Some states allow statutory interest on debts owed under contracts.
• Via fast-track adjudication under your state’s SOP Act. An adjudicator can award interest as part of their determination, though this isn’t automatic.

The Role of Your Contract

Your contract is your strongest shield. If it clearly states an interest rate on overdue invoices, you’re on solid ground. A well-drafted contract might read something like: “If payment is not made by the due date, interest accrues at 10% per annum on the unpaid balance until full payment is received.”

Many subcontractors don’t have detailed contracts—they work on handshakes or loose terms. If that’s you, it’s worth getting something in writing going forward, even a simple one-page agreement that covers:

1. Payment due date (e.g., 30 days from invoice)
2. Interest rate on late amounts (check your state’s legislation for guidance on what’s reasonable)
3. How interest is calculated (daily, monthly, per annum)
4. When interest stops accruing (on receipt of full payment, or on lodgement of a claim)

Statutory Interest and State-Based Rules

Some Australian states have legislation that allows interest to accrue on unpaid debts even if the contract doesn’t mention it. These vary:

NSW: The Penalty Interest Rates Act 1983 allows courts to award interest on debts, though it’s not automatic. You generally need to claim it explicitly.

Victoria: Similar approach under common law; interest can be awarded by a court but isn’t automatic unless your contract says so.

Queensland: The BIF Act 2017 doesn’t set an interest rate, but adjudicators can award interest as part of their determination if you ask for it.

Western Australia, South Australia, Tasmania, NT, ACT: Each has its own SOP-type legislation and approach to interest. The safest approach is always to have it written into your contract.

The bottom line: don’t assume interest will be awarded just because you’re unpaid. If you want to claim it, make it explicit in your contract or your payment claim.

Interest and the SOP Claims Process

If you’ve issued a payment claim under your state’s Security of Payment Act and haven’t been paid, you have the option to pursue fast-track adjudication. During adjudication, you can ask the adjudicator to award interest on your unpaid amount.

An adjudicator will consider:

• Whether your contract mentions interest
• How long the payment has been overdue
• What’s reasonable and fair in the circumstances
• Any agreement between you and the debtor about interest

When you file a payment claim, you can include a line item for interest accrued to date. Make sure you calculate it clearly and reference the contract term or legal basis you’re relying on. The more detailed you are, the better your case.

Keep It Reasonable

There’s a practical point here: charging exorbitant interest can damage your relationship with clients and may not be enforceable. Courts and adjudicators are more likely to uphold interest rates that are commercially reasonable—typically between 5% and 12% per annum, depending on the industry and circumstances.

If you’re drafting a new contract, check what rates are standard in your state and trade. Overly punitive rates might be seen as unenforceable penalties.

What to Do Now

If you’re owed money right now and want to recover it, the first step is to check your contract. Does it mention interest? If so, you can calculate what’s owed and include it in a formal demand or adjudication claim. If not, you can still ask for interest through adjudication, but your case will be stronger if you can point to a contractual or statutory basis.

Charging interest isn’t just about punishment—it’s about covering the real cost of waiting for your money. You lose the use of that cash, you might pay interest on your own debts, and your business suffers. Interest clauses protect you and encourage faster payment.