Late Payment Interest
Also called: Interest on Overdue Payments · Late Fee Clause
A late payment interest clause sets the rate charged on invoices paid after their due date, and often gives the unpaid party a right to suspend work until payment is received. Without it, paying late carries no real financial consequence.
In more detail
Without an interest clause, a customer that simply delays payment faces no direct cost for doing so — the supplier bears the entire cash-flow impact. An interest clause makes lateness carry a price, which is often enough on its own to change payment behaviour.
The right to suspend work for non-payment is a separate, and arguably more powerful, remedy than interest — it stops the supplier from continuing to extend credit to a customer who isn't paying, rather than just charging them more for the privilege.
Some jurisdictions set a statutory default interest rate on commercial debts that applies even if the contract is silent — but relying on a statutory default is weaker than stating the rate explicitly, since it requires the supplier to know and invoke a right the contract itself doesn't mention.
An invoice for ₹5,00,000 is 45 days overdue under a contract specifying 1.5% monthly interest on late payments. The supplier is owed the original amount plus accrued interest, and — if the clause allows it — can also pause further work until the account is settled.
What our lawyers check
- Whether an interest rate is specified, and whether it's enforceable under the governing law
- Whether there's a right to suspend work for non-payment, and the notice required to exercise it
- How "late" is defined — from the invoice date, or a separate due date
- Whether interest compounds, and how it's calculated
Contracts where this clause matters
Related terms
This definition is general information about commercial contracting practice, not legal advice. How a clause operates depends on the specific wording of your agreement and the law that governs it. For advice on your contract, have it reviewed by a lawyer.
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