Late Payment Interest: What You Can Charge

When a customer pays late, you are generally entitled to default interest on the overdue amount. It compensates you for the delay.

The legal basis

Under the Code of Obligations, a debtor in default owes default interest (Verzugszins). Default begins when the payment is due and is not made.

The debtor is in default automatically once the payment term passes, provided the invoice is valid and undisputed. No reminder is strictly required for interest to run.

For commercial transactions, a statutory rate applies unless you agreed otherwise in your contract or general terms.

Default interest is a legal right, not a penalty you impose at will. Knowing the rules lets you claim it confidently and correctly.

• Default interest is owed once the debtor is in default.
• Default begins when the due date passes.
• A statutory rate applies to commercial debts.
• A contract can set a different rate.

The rate

The statutory default interest rate for commercial debts is 5% per year. This is the default figure when no other rate has been agreed.

You can agree a different rate in your contract or general terms. Many businesses set a higher rate to discourage late payment.

The agreed rate must be reasonable to be enforceable. Excessive rates can be reduced by a court if challenged.

Interest is calculated on the overdue amount for the days it is late. Even 5% adds up on large invoices held for months.

• Statutory rate: 5% per year.
• A contract can set a different rate.
• Rates must be reasonable.
• Calculated per day on the overdue amount.

When interest starts

Interest runs from the day after the due date. If your invoice is due on 30 April, interest starts on 1 May.

For a valid claim, the invoice must be correct and the debtor must actually be in default. A disputed invoice does not accrue interest the same way.

If no payment term was stated, default does not begin until the debtor is formally reminded to pay. State your terms to avoid this uncertainty.

Interest continues until the full amount is paid. It does not replace the principal, it adds to it.

• Runs from the day after the due date.
• Requires a valid, undisputed invoice.
• No stated term means a reminder is needed.
• Accrues until full payment.

Stating it and being consistent

Put the interest rate in your terms and on the reminder, and apply it consistently. Charging it is your right — and knowing it is coming often nudges a late payer to settle.

State the applicable rate on your invoices or in your general terms so it is agreed in advance. An unannounced rate is harder to enforce.

When you send a reminder, show the interest that has accrued so far. Concrete figures are more persuasive than a vague warning.