What is late payment interest

Late payment interest refers to the interest that accumulates on an invoice if it has not been paid by the due date. In Australia, there is generally a grace period before you can request or be charged late payment interest, which is typically specified in the terms of the invoice or contract.

Commencement of late payment interest

The interest begins to accrue the day after the payment was due, and it usually cannot be claimed until a specified time has passed, often outlined in the business’s payment terms. The interest is calculated based on the number of days for which the payment is late and the daily late payment interest rate in operation on the date the payment became overdue.

However, the interest rate charged on overdue invoices should be reasonable and typically capped at around 10% annually, with the interest broken down into a monthly charge. Additionally, the Queensland Government’s On-time Payment Policy specifies that interest is applicable after 20 calendar days up until payment is made.

How is the delay refund interest determined?

In Australia, the interest on delayed refunds is typically calculated and paid automatically by the Australian Taxation Office (ATO). The ATO will calculate the delayed refund interest (DRI) amounts and pay them to the taxpayer with the delayed refund. The interest is calculated based on the number of days the refund is delayed and the applicable interest rate. The interest can be used to offset another tax liability or can be refunded to the taxpayer. The interest rates for delayed refunds can vary and are set by the ATO.