Australia has no single statutory late-payment rate like the UK, so getting paid late comes down to three things: your contract, the Security of Payment Act, and which recovery path you pick. Here is how interest actually works and the escalation ladder from a polite reminder all the way to winding the debtor up.
Interest on a late payment — three layers
- Your contract's default-interest clause. The most common source — HIA/MBA-style contracts often set around 18% per year, simple. The clause sets the rate; SOP and the courts enforce it.
- The SOP Act. An adjudicator can award interest on the unpaid amount — at the contract rate if specified, or a referenced statutory rate if the contract is silent.
- General civil law. Court-ordered interest if you sue.
Daily interest (simple): invoice ÷ 365 × annual rate × days late. Worked example: $10,000 at 18%, 30 days late → about $4.93 a day → roughly $148. The lesson: put a default-interest clause in every contract so you actually have the right to charge it.
The escalation ladder
- Reminders — one to three, firmer each time; confirm the amount and the due date.
- Letter of demand — formal and in writing: the work done, the amount, interest/charges, a clear deadline, and notice that legal steps may follow. Use the Letter of Demand template.
- SOP payment claim — for a construction debt, re-issue the unpaid invoice as a Security of Payment claim; if no valid schedule comes back in time, go to adjudication. The fastest route for progress claims and subbie-vs-builder disputes — see Security of Payment Explained.
- Tribunal — NCAT (NSW), VCAT (VIC), QCAT (QLD) and the others for modest disputes; built for self-representation with low fees.
- Court — Magistrates/Local up to Supreme for larger or complex claims; a SOP determination can be registered as a court judgment to enforce.
- Statutory demand (company debtors only) — if the debtor is a company and the debt is over the Corporations Act threshold, they get 21 days to pay, settle, or apply to set it aside; ignore it and it is a ground to wind the company up. A sharp tool — get a lawyer to draft it.
Which path, and what it costs
- SOP adjudication: modest fees, fast — many are resolved in about 4–8 weeks from the claim, with limited defences ("pay now, argue later"). Best for construction progress debts.
- Tribunal: a few hundred dollars in fees; filing to hearing a few months; simpler and less formal.
- Court: fees and legal costs can exceed a small debt — viable mainly for larger or complex claims.
- Statutory demand: effective against a company, but escalation to a winding-up costs more.
Stop it happening — cashflow controls
- Deposit + progress stages: a meaningful upfront deposit (materials + initial labour), then milestone claims (slab, frame, lock-up, fix) aligned to your SOP progress claims.
- Short, explicit terms: 7–14 days with a due date on every invoice — not "end of month".
- Weekly or milestone billing on labour-heavy jobs — cash in sooner and problems spotted earlier.
- Contract controls: a default-interest clause, SOP rights referenced, a basic check on new commercial clients (an ASIC search), credit limits, and pausing work when terms are breached.
- Do not fund their cashflow: line your supplier terms up with your billing — do not pay in 7 days while you are paid in 45.
Common mistakes
- No default-interest clause — so no easy right to charge interest.
- Jumping to court for a construction debt when SOP is faster and cheaper.
- "End of month" terms that quietly drift out to 60+ days.
- Carrying one big client whose late payment can sink you.
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