Getting PaidNZ BusinessInvoicing8 June 2026 · 6 min read

How to calculate late payment interest in NZ (and when you can charge it)

When NZ freelancers and contractors can charge interest on overdue invoices, how to calculate the amount, and what your contract needs to say before you can enforce it.

Late payment interest is one of the few tools available to NZ freelancers to discourage slow payers. Used correctly, it either speeds up payment or compensates you for the delay. But there's a critical prerequisite: it must be in your terms before the work starts. You cannot add it retrospectively.

When can you charge late payment interest?

You can charge late payment interest (or late payment fees) only if:

1. Your contract or terms of trade state the interest rate and when it applies, AND 2. Those terms were agreed before the work began

There is no statutory right to late payment interest in NZ for general commercial debts (unlike some countries). Everything depends on what your contract says.

If your invoices or terms are silent on late payment, you have no legal basis to add interest to an overdue invoice. The client owes the invoiced amount, nothing more.

Important: You cannot add a late payment clause after sending an invoice. If your standard invoices don't include terms that specify an interest rate and trigger, add them now for future work. Existing unpaid invoices are governed by the terms at the time they were issued.

What rate is standard in NZ?

There's no mandatory rate set by law for commercial late payment interest in NZ. Common rates in use:

- 2% per month (24% per annum): the most common rate for sole traders and small businesses - 1.5% per month (18% per annum): used by businesses that want a lower rate that still incentivises payment - Reserve Bank OCR + margin: some B2B contracts reference the OCR plus a fixed margin (e.g. OCR + 5%), which adjusts as the OCR changes

Any rate you choose is enforceable if it was agreed in advance. Rates above around 3% per month may be challenged as a penalty clause rather than genuine interest, so most practitioners stay below that.

Tip: A rate of 2% per month is high enough to get a client's attention (it works out to $200 per month on a $10,000 invoice) but low enough to survive a court challenge as genuine interest rather than a penalty.

How to calculate the interest amount

Two formulas, depending on whether you calculate daily or monthly:

Daily interest = Invoice amount × (annual rate ÷ 365)

Total interest = Daily interest × number of days overdue

Example: $5,000 invoice, 2% per month (24% per annum), 45 days overdue:

- Daily rate: 24% ÷ 365 = 0.06575% per day - Daily interest: $5,000 × 0.0006575 = $3.29 per day - 45 days overdue: $3.29 × 45 = $148.05

Alternatively, using monthly calculation if your terms say "2% per month":

- $5,000 × 2% = $100 per full month - Partial month: $100 × (15/30) = $50 - Total for 1 month 15 days: $150.00

Invoice amount	Rate	30 days overdue	60 days overdue	90 days overdue
$1,000	2%/month	$20	$40	$60
$5,000	2%/month	$100	$200	$300
$10,000	2%/month	$200	$400	$600

How to invoice for late payment interest

Send a separate invoice for the interest amount. Do not add it to the original invoice without the client's agreement, as this complicates the GST treatment and the paper trail.

The interest invoice should: - Reference the original invoice number - State the period the interest covers (start date to end date) - Show the calculation: invoice amount × rate × days or months - State the interest is charged under [clause X] of your contract or terms

GST treatment: late payment interest is a financial service and is exempt from GST. You do not charge GST on the interest amount even if you're GST registered.

Tip: Sending the interest invoice often prompts payment of the original invoice without the client actually paying the interest. That's the intended outcome: it signals you're tracking the overdue account seriously.

Can I claim late payment interest at the Disputes Tribunal?

Yes, if your contract specifies it. The Disputes Tribunal will enforce contractual late payment interest if you can show:

- Your terms specified the interest rate - Those terms were agreed before the work started (ideally in a signed contract or an email accepting your standard terms) - The interest calculation is accurate

Bring your original contract or terms, the invoice, and your interest calculation to the hearing. The referee will review the clause and, if it's reasonable, include the interest in any order made.

If your terms don't mention interest, the Tribunal can still award interest under the Judicature Act at the prescribed rate, currently around 5% per annum. This is much lower than a commercial late payment clause and is only awarded at the Tribunal's discretion.

Free late payment calculator

PayWren's late payment calculator takes your invoice amount, interest rate, and days overdue and produces the interest amount immediately, along with a breakdown you can copy into a payment demand email.

It also shows the total outstanding (original invoice plus accrued interest) so you have a clear figure when communicating with the client or filing a Disputes Tribunal claim.

Tip: The most important thing isn't calculating the exact interest: it's having the late payment clause in your terms from the start. Add it now. A well-drafted terms of trade document from a NZ solicitor costs $300 to $800 and pays for itself the first time a client tests your payment terms.

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