Can You Charge Interest on an Overdue Invoice in NZ?
Yes — but only if your customer agreed to it before the invoice fell due. New Zealand has no automatic statutory right to charge interest or a late fee on an overdue commercial invoice. The right has to come from your written terms of trade. If your quote, contract or terms say nothing about interest, you have no contractual basis to add it, and the customer can simply refuse to pay it.
The Legal Basis: It's Contractual, Not Automatic
Some countries give suppliers a statutory right to late-payment interest at a set rate. New Zealand does not. Here, default interest on a trade debt arises in one of two ways:
- By agreement. Your written terms of trade state an interest rate and/or a late fee for overdue accounts, and the customer accepted those terms. This is the route that matters day to day.
- By a court or tribunal award. If you take the debt to the Disputes Tribunal or a court, the referee or judge may award interest as part of the judgment even where your contract is silent.
The practical consequence is that the work has to happen upfront. An interest clause added to an invoice after the fact, or printed in small type on a statement the customer never agreed to, is unlikely to be enforceable. The clause needs to be in the terms the customer accepted when they opened the account or accepted the quote — which is one reason a trade account application is worth getting right.
The Common NZ Convention: 1.5% Per Month
There is no rate set by law, so suppliers set their own. The most common convention in New Zealand trade terms of trade is 1.5% per month on overdue balances, which works out to roughly 18% a year if applied monthly without compounding. Rates between 1% and 2% per month are all routinely seen; above that, enforceability gets harder to argue.
Worked example. A building-materials supplier invoices $8,000 on Net 30 terms, with terms of trade specifying 1.5% per month on overdue amounts. The customer pays 45 days after the due date.
| Invoice amount | $8,000 |
|---|---|
| Rate in terms of trade | 1.5% per month |
| Interest per month | $120 |
| Days overdue | 45 (1.5 months) |
| Interest chargeable | $180 |
Note what that number is and is not. $180 on an $8,000 invoice does not come close to covering the cost of being 45 days short of $8,000 — the overdraft interest, the chasing time, the orders not placed. Late-payment interest is a deterrent and a partial recovery, not a cash-flow solution. The real cost of offering trade credit sits well above it.
How to Put It in Your Terms of Trade
Three things make an interest clause worth having:
- Make it specific. State the rate, the period it applies to, and when it starts accruing — for example from the day after the due date. A clause saying “interest may be charged on overdue accounts” gives you very little to enforce.
- Make it a genuine reflection of cost. A rate that functions as a punishment rather than compensation for being out of pocket risks being treated as an unenforceable penalty. Keeping it within the usual 1–2% per month range, and being able to point to your own borrowing costs, keeps it defensible.
- Make sure the customer accepted it. Have the terms signed at account-opening, referenced on the quote, and printed on or linked from the invoice. Acceptance is what you will need to show.
Many suppliers also include a clause allowing recovery of debt-collection and legal costs. That is a separate right and needs its own wording — it does not follow automatically from an interest clause. This is general information rather than legal advice; terms of trade are worth having a lawyer draft or review once, since they get used for years.
What If the Customer Disputes the Interest?
In practice, most do at first — and most suppliers waive it to preserve the relationship, which is a perfectly rational commercial decision. Before that conversation, it is worth checking three things: that the customer genuinely accepted the terms containing the clause, that the invoice was correct and delivered to the right place, and that the goods or services were not themselves in dispute. Interest on an invoice the customer is legitimately querying is a weak position.
If the invoice itself is simply not being paid, interest is the smallest of your questions. See what happens if a customer doesn't pay your invoice in NZ for the escalation path, and what to do when a customer pays an invoice late for handling the conversation itself. The rest of this cluster is in the invoicing guide.
Frequently Asked Questions
Is there a statutory late payment interest rate in New Zealand?
No. Unlike some other jurisdictions, NZ has no automatic statutory right to late-payment interest on commercial invoices and no prescribed rate. It must come from your terms of trade, or be awarded by a court or tribunal.
How much interest can I charge on an overdue invoice?
Whatever your terms of trade specify, provided it is a genuine reflection of your cost of being unpaid rather than a penalty. 1.5% per month is the most common NZ convention, with 1–2% per month the usual range.
Can I charge interest if my terms of trade don't mention it?
Not unilaterally. Without an accepted contractual right, the customer can decline to pay the interest and you would be relying on a court or the Disputes Tribunal awarding it as part of a judgment on the debt.
Can I charge a flat late fee instead of interest?
Yes, if your terms say so and the amount is a reasonable reflection of your administrative cost. A flat fee that is large relative to the invoice is more vulnerable to being treated as an unenforceable penalty than a modest percentage rate.
Does charging interest affect the GST on the invoice?
Default interest on an overdue account is generally not treated as part of the consideration for the original supply. Check the treatment with your accountant before you start adding interest lines to GST invoices.
Better Than Charging Interest: Not Waiting
Interest recovers a fraction of what late payment costs you. PaidTerms pays you the invoice upfront and lets your customer pay over time instead.
Read next: what happens if a customer doesn't pay, or what to do when a customer pays late.
