Can I charge interest on an unpaid invoice in Singapore?

Yes, if an interest rate was agreed in your contract or terms of trade before the sale. Adding interest the customer never agreed to is hard to enforce.

What interest rate does a Singapore court award on a debt?

For judgments in default, the Practice Directions 2021 set non contractual interest at 5.33% a year, and post judgment simple interest at 5.33% a year where no rate was agreed.

Is a late payment fee a penalty in Singapore?

It can be. Under the Denka Advantech decision, a sum payable on breach that is more than a genuine pre estimate of the likely loss is a penalty and cannot be enforced.

Do I charge GST on late payment interest?

IRAS treats interest on overdue trade debts from a local customer as an exempt supply, so GST is not charged on it. Interest from an overseas customer is zero rated.

Can I add interest if it is not in my contract?

You have no contractual right to interest without an agreed clause. If you sue and get judgment in default, the Practice Directions set interest at 5.33% a year from the start of the claim.

Late Payment Interest Singapore: Can You Charge It?

Q: How long can I claim interest on a judgment debt?

Under section 6(3) of the Limitation Act, arrears of interest on a judgment debt cannot be recovered more than 6 years after the interest became due.

Key facts

Late payment interest is easiest to claim when an agreed rate is in your contract or terms of trade.
A sum payable on breach that is more than a genuine pre estimate of loss is a penalty and unenforceable (Denka Advantech v Seraya Energy).
On judgments in default, non contractual interest is 5.33% a year under the Practice Directions 2021.
IRAS treats interest on overdue trade debts from a local customer as an exempt supply, so no GST is charged on it.

Start with what your customer agreed

Interest on a late invoice is a contract term like any other. If your quotation, contract or terms of trade say interest runs on overdue sums, and the customer accepted those terms, you can claim it. If the first mention of interest is on an overdue reminder, the customer never agreed to it.

When you go to court, this matters. The Practice Directions say that where interest has been agreed, the agreed rate must be set out in the draft judgment, and in the General Division of the High Court evidence of the agreement on the rate must be attached. Keep the signed quotation or the accepted terms.

The penalty rule

Singapore follows the traditional rule on penalties. In Denka Advantech v Seraya Energy [2021] 1 SLR 631, the Court of Appeal held that a sum payable on breach of contract must be a genuine pre estimate of the likely loss. A sum above that is penal and unenforceable, even if it protects a commercial interest.

Paying after the due date is a breach of the payment term. So a late payment charge set far above any loss you could expect from being paid late risks being struck out as a penalty. Choose a rate you can explain, for example by reference to what it costs your business to wait for money.

The same case held that the penalty rule does not apply to payments triggered by events that are not breaches of contract.

Interest a court can award

If you sue and the debtor does not respond, you may get judgment in default. For these judgments, the State Courts and Supreme Court Practice Directions 2021 set the following:

Situation	Interest under the Practice Directions
No agreed rate, before judgment	5.33% a year, from the date of the originating process to the date of judgment
Agreed rate, before judgment	The agreed rate, which must be stated in the draft judgment
No agreed rate, after judgment	Simple interest at 5.33% a year, from judgment until payment

On a judgment in default with no agreed rate, interest runs from the date you start the claim, not from the date the invoice fell due. An agreed clause can cover the period in between.

Interest also has a time limit. Under the Limitation Act, arrears of interest on a judgment debt cannot be recovered more than 6 years after the interest became due.

How to word it in your terms of trade

Put it in before the saleThe clause should be in the quotation, contract or terms the customer accepts before you deliver.
State the rate clearlyGive a yearly or monthly rate, and say whether it is simple or compounded.
Say when it startsTie it to the due date on the invoice, for example from the day after payment was due.
Keep it proportionateA rate you can link to your real cost of late payment is easier to defend against the penalty rule.
Show it on every invoiceRepeat the payment terms and the interest clause on your invoices, so there is no surprise.

Sample wording. “Invoices are payable within 30 days of the invoice date. Overdue amounts carry simple interest at [rate]% a year from the day after the due date until payment in full.” Have a lawyer check the clause for your business before you rely on it.

Do you charge GST on late payment interest?

IRAS treats interest received on overdue trade debts as payment for a financial service. If the customer is a local entity, it is an exempt supply: you do not charge GST on the interest, and you report its value in Box 3 of your GST return. If the customer is overseas, it is a zero rated supply reported in Box 2. The IRAS page deals with interest, so check with IRAS before treating a flat late fee the same way.

Using the clause when you chase payment

An agreed interest clause gives you something to negotiate with. State the interest running in your letter of demand, and consider offering to waive it if the principal is paid by a set date. Our guide to unpaid invoices sets out the steps from first reminder to formal action.

Where a debt collection company helps

A debt collection company cannot give legal advice on your clause or sue on your behalf. What we can do is put the agreed interest in front of the debtor, negotiate a settlement you approve, and keep the pressure on until the money comes in. Our debt recovery service is success based: no recovery, no fee.

This page is general information, not legal advice. Speedy Debt Collection is not a law firm. For drafting terms of trade, speak to a lawyer.

Can you charge interest on late payments in Singapore?