Late Payment Fees: Can You Actually Charge Them? (And How to Make Them Stick)

Ask a room full of tradies whether you can charge late payment fees and you'll get three answers: "Yeah, of course," "Not really," and "My bookkeeper tried once and it was a mess."

The truth is you can charge late payment fees in both New Zealand and Australia – but only if you set them up correctly, in writing, before the work starts. Get the setup wrong and the fees aren't enforceable. Get it right and they do two things for you: they nudge clients to pay on time, and they compensate you when they don't.

Here's the plain-English version.

The golden rule

You can only charge a late payment fee if the client agreed to it before they owed you money. That means it must be in your quote, your contract, or your standard terms of engagement – and the client must have seen and accepted those terms.

Adding a late fee to an invoice for the first time, after the work is done, is not enforceable. The client can simply refuse, and if you try to sue for the fee, you'll lose.

New Zealand specifics

In NZ, late payment fees are generally governed by contract law. If your quote or terms state a late fee, and the client signed or accepted the quote, you can charge the fee.

The fee must be a genuine pre-estimate of the loss you'd suffer from late payment – not a penalty. In practice, rates of 1-2% per month (roughly matching typical finance costs) are considered reasonable and enforceable. Much above that risks being classed as a penalty clause and struck out.

There's also the Contract and Commercial Law Act 2017, which allows interest on judgment debts at a statutory rate (currently around 5%) if you end up in court – useful as a fallback.

For business-to-business dealings, the government introduced the Business Payment Practices Act 2023 requiring large entities to report payment practices, but this doesn't directly let you charge fees. It does, however, give you leverage – large businesses are under more pressure to pay on time.

Australia specifics

In AU, the same principle applies: late fees must be in the contract and must be a genuine pre-estimate of loss, not a penalty. 1-2% per month is generally accepted.

Additionally, the Business Names Registration Act and state-level fair trading laws mean your terms must be clear and not misleading. Some industries have specific rules – for example, security of payment acts in construction vary by state (NSW, VIC, QLD all have their own).

ASIC also enforces consumer protection rules: you can't charge fees that are excessive or hidden. Put the late fee term in the same font as the rest of your quote, not buried in small print.

The wording that works

Add this line to your quote and terms document, in the section titled "Payment Terms":

"Payment is due 14 days from the date of invoice. A late payment fee of 1.5% per month will be applied to any amount that remains unpaid after the due date. The late fee is calculated on the outstanding balance and accrues monthly until paid in full. In the event of non-payment, reasonable debt recovery costs may also be recoverable."

Three things this wording does: it sets a clear due date, states the fee as a percentage (not a flat amount, which is harder to justify as a genuine pre-estimate), and flags that recovery costs may apply. That last clause is what lets you claim collection agency fees or tribunal filing fees later.

When to actually charge the fee

Legally you can charge from the day after the due date. Practically, don't. Most clients who pay a few days late do so because they genuinely forgot. Charging them a fee for a 3-day delay creates a bad relationship for a tiny gain.

The sensible approach: warn at day 21 that fees will apply from day 30, then apply them at day 30. This gives the client a clear window to avoid the fee and positions you as fair, not aggressive.

Your warning letter at day 21 is the critical document. Template:

"Hi [Name], invoice #0123 for $[amount] is now 21 days overdue. As per our agreed terms, a late payment fee of 1.5% per month will apply from [date] if payment isn't received. I'd rather not add the fee – please pay today via [link] or contact me to arrange a plan."

Automated systems like TabNudge handle this warning for you: when an invoice crosses the 21-day mark, the late-fee warning template fires automatically, and on day 30 the fee is applied and a new invoice is generated in Xero. You don't have to think about it – and more importantly, you don't have to have the awkward conversation about whether you're really going to charge the fee this time.

What to avoid

**Flat fees like "$50 per week overdue."** These are much harder to justify as a genuine pre-estimate and are often struck out. Stick to percentages.

**Compounding interest stacked on top of late fees.** Pick one: late fee per month, or interest per day. Both starts looking punitive.

**Charging fees on disputed invoices.** If the client has raised a legitimate concern with the work, pause the fee clock until it's resolved. Charging fees on a disputed invoice looks aggressive to a tribunal.

**Charging different clients different fees arbitrarily.** If you have a late fee clause, apply it consistently. Inconsistent application makes it harder to enforce when you need to.

The bottom line

Late payment fees work when they're baked into your standard process – in the quote, on every job, and enforced consistently. They work even better when they're automated, so the admin burden is zero and the client feels the consequence without you having to be the bad guy.

Get your terms sorted once. Then let the system handle it.