Late payment interest: how (and how much) to charge a client for late payment

The legal framework for late payment interest in Switzerland

In Switzerland, default interest is governed by Article 104 of the Code of Obligations (CO). This text gives the creditor the right to claim interest as soon as a payment is late, without having to prove financial loss.

It's a right, not an obligation: you decide whether you wish to apply it or not. The rules apply identically to B2B and B2C relationships, although commercial practice often differs depending on the type of client.

Late payment interest constitutes a legitimate tool for compensating the loss caused by payment delay. It's not a punitive sanction, but compensation for the immobilisation of your cash flow.

What is the applicable legal rate?

The legal default interest rate in Switzerland is set at 5% per annum according to Article 104 paragraph 1 of the CO. This rate applies automatically in the absence of a different contractual clause.

You can agree on a higher rate in your general terms and conditions or on your invoices, within reasonable limits (generally up to 8-10%). An excessive rate could be contested as abusive.

This 5% rate also corresponds to the ordinary interest provided for in Article 73 CO, but this concerns other legal situations. For late payment penalties, it's Article 104 that applies.

From when can you charge late payment interest?

Late payment interest is due as soon as the debtor is in default. Two situations arise:

1. Fixed deadline on the invoice: If you indicate a specific payment deadline (for example "payable within 30 days"), interest runs automatically from the day after the deadline, without additional formality.

2. No deadline mentioned: You must first send a reminder or formal notice. Interest only runs after this formal demand.

This is why it's crucial to always clearly mention the payment deadline on your invoices. Avoiding this common invoicing mistake allows you to claim interest without prior steps.

How to calculate late payment interest: the formula

The calculation of late payment interest follows a simple formula:

(Amount due × Interest rate × Number of days late) ÷ 365

Concrete example: You've issued an invoice for 5,000 CHF with 60 days late and a rate of 5%.

Calculation: (5,000 × 0.05 × 60) ÷ 365 = 41.10 CHF

Important precision: we count in calendar days, not working days. The calculation starts the day after the deadline and ends on the day of actual payment.

Practical example with several scenarios

Here are three concrete cases to illustrate different situations:

Case 1 – Small invoice: 1,200 CHF with 30 days late
(1,200 × 0.05 × 30) ÷ 365 = 4.93 CHF

Case 2 – Medium invoice: 8,500 CHF with 90 days late
(8,500 × 0.05 × 90) ÷ 365 = 104.79 CHF

Case 3 – Large invoice: 25,000 CHF with 45 days late
(25,000 × 0.05 × 45) ÷ 365 = 154.11 CHF

These amounts may seem modest, but they have significant deterrent value and partially compensate for the loss caused by the immobilisation of your cash flow.

How to charge late payment interest in practice

Three options are available to you for charging interest:

1. Additional line on the reminder invoice: Add a line "Default interest" with the calculated amount.

2. Separate invoice: Create a dedicated invoice solely for late payment interest, referencing the initial invoice.

3. Mention in the reminder letter: First inform the client of the interest amount before formally invoicing.

Crucial VAT point: Late payment interest is not subject to VAT. It's a service excluded from the scope of application.

For a structured approach to reminders, consult our guide on dispute management.

The late payment interest clause to insert in your invoices

Including a late payment clause from the initial invoice strengthens your legal position and clearly informs the client.

Standard wording (legal rate):
"In case of late payment, default interest of 5% per annum will be due from the deadline, without formal demand."

Stricter variant:
"Any late payment results in the application of default interest at the rate of 8% per annum, calculated from the day following the deadline."

Adapt the wording according to your business sector and commercial relationships. A higher rate may be justified for projects with high financial stakes or recurrent late-paying clients.

Integrating the clause into your general terms and conditions

For automatic protection on all your transactions, integrate a detailed clause into your T&Cs:

Example T&C wording:
"Invoices are payable within 30 days net from the date of issue. In case of delay, default interest of 5% per annum is due automatically, without prior notice. Reminder fees may be added in accordance with our scale (1st reminder: 30 CHF, 2nd reminder: 50 CHF, 3rd reminder: 80 CHF)."

Advantage: This clause applies to all your invoices without having to repeat it each time.

Important: Your T&Cs must be communicated and accepted by the client (mention on the invoice or signature when ordering).

Best practices: when and how to apply interest

A progressive approach preserves your business relationships whilst protecting your interests:

1st reminder (D+10): Friendly reminder without mention of interest. Often, it's simply an oversight.

2nd reminder (D+30): Firmer tone with mention that interest is starting to run.

3rd reminder (D+45): Actual invoicing of accumulated interest and announcement of recovery procedures.

When to waive interest: For small amounts (less than 500 CHF), with loyal clients exceptionally late, or in case of proven force majeure.

Combine this strategy with optimal sending timing and techniques to improve your cash flow.

Reminder fees: a complement to interest

Reminder fees and late payment interest are two distinct and cumulative mechanisms:

Default interest: Compensates for financial loss (cash flow immobilisation).

Reminder fees: Compensate for administrative steps (time spent, postage costs, management).

Usual reminder fee scale:

• 1st reminder: free or 20-30 CHF

• 2nd reminder: 40-50 CHF

• 3rd reminder: 60-80 CHF

These fees must also be mentioned in your T&Cs to be enforceable. You can charge them in parallel with default interest, which strengthens the deterrent effect.

How BePaid facilitates tracking and reminders

BePaid helps you manage your deadlines effectively and quickly identify invoices subject to late payment interest:

Automatic tracking: Dashboard with clear visualisation of overdue invoices and the number of days elapsed.

Programmable reminders: Automate your reminders according to your strategy (D+10, D+30, D+45) to never forget a follow-up.

Complete history: Keep track of all your exchanges and reminders to document your steps.

BePaid provides the management and tracking tools, but the calculation and invoicing of interest remains manual, according to your commercial policy. To secure your cash flow upstream, also consider invoicing deposits on your large projects.

Late payment interest is a legitimate right when a client is slow to pay you. The legal rate of 5% in Switzerland applies from the deadline, without prior formal demand, and you can raise it to 10% if your general terms and conditions clearly provide for it. The calculation formula remains simple: amount due × rate × number of days / 360.

But beyond the calculation, the essential thing remains prevention and rigorous follow-up. Systematically mention the interest clause on your invoices, quickly chase up delays and document each exchange. Interest works mainly as a negotiation lever and a clear signal of professionalism.

To save time on payment tracking and automate your reminders, try BePaid for free. Our system automatically alerts you to overdue invoices, generates your reminders and allows you to track your cash flow in real time. No more Excel spreadsheets: focus on your business whilst BePaid monitors your collections.