What does late payment actually cost a small business?

The direct cost is financing. Money owed to you is money you have already earned and spent time producing, and while it sits unpaid you fund the gap from an overdraft, savings, or your own pocket. On the default figures, a business invoicing $120,000 a year on 20 day terms that is actually paid in 45 days is carrying an extra $8,219.18 of working capital, which at a 12 percent cost of money is $986.30 a year. There are indirect costs too, in time spent chasing and in the work not done while chasing, which this calculator does not attempt to price.

Why does tax make late payment worse for the self-employed?

Because tax is charged on income when it is earned, not when the cash arrives. If you invoice in March and are paid in May, the income belongs to the earlier tax year and the tax on it can fall due before the client has paid you. Reserving against invoices as they are issued rather than as they are paid protects you from this, but it also means the reserved money is sitting aside for income you have not received, which is a second call on the same working capital.

Can I charge interest on overdue invoices in New Zealand?

You can if your terms of trade provide for it and the client agreed to those terms before the work began. A right to charge interest that first appears on the overdue invoice itself is generally not enforceable, because it was never part of the agreement. Whether to actually charge it is a commercial judgement rather than a legal one; many businesses set the term so that the option exists and waive it in practice, which is easier than negotiating it after the event.

Is it worth offering a discount for early payment?

Compare the discount against the financing cost this calculator shows. A 2 percent discount to be paid 25 days sooner is an implied annual rate of roughly 29 percent, which is far more expensive than almost any overdraft. Early payment discounts are usually a poor deal for the person offering them, and they are worth using only when the cash is needed urgently rather than as a standing policy.

What is the single most effective thing to change?

Invoicing sooner. The delay you control completely is the gap between finishing the work and issuing the invoice, and for many sole traders it is longer than the delay the client adds. Nothing about the client relationship has to change and no conversation is required. Shortening stated terms and following up promptly both help, but they involve other people; issuing the invoice on the day the work finishes does not.

Late Payment Cost Calculator NZ 2026

Reviewed 5 August 2026.

Quick answer Invoicing $120,000 a year on 20 day terms but being paid in 45 days ties up $14,794.52 of working capital, of which $8,219.18 is the delay beyond your own terms. At a 12% cost of money that delay costs $986.30 a year, or $41.10 per invoice. Getting paid on your stated terms would recover all of it.

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Late payment is usually treated as an irritation rather than an expense, which is why it goes unpriced and therefore unmanaged. It is an expense. Work you have finished and invoiced represents money you have already spent time and materials producing, and every day it remains unpaid is a day you fund the business yourself, whether from an overdraft, from savings that would otherwise earn something, or by not paying yourself. The cost is the amount outstanding multiplied by what money costs you, and for a business of any size it is rarely trivial. There is a second effect that hits the self-employed specifically. Income tax is charged on income when it is earned, not when the cash turns up, so an invoice issued near the end of a tax year can generate a tax liability before the client has paid it. If you reserve tax as you invoice, which is the safe approach, that reserved money is a further call on the same working capital. This calculator prices both, separates the delay you agreed to from the delay you did not, and lets you test what tightening terms or invoicing sooner would actually be worth.

Annual revenue invoiced Gross, for a full year

Invoices per year Used for the per-invoice figure

Your payment terms Days you ask for

Days clients actually take From invoice to money received

Your cost of money Overdraft or loan rate, or what the cash would earn

Tax you reserve per invoice Percentage held back for income tax and ACC

Annual cost of the delay
$986.30
25 days beyond your terms

Working capital tied up

$14,794.52

outstanding at any moment

Cost per invoice

$41.10

on a $5,000.00 average invoice

Where the money goes

Average invoice$5,000.00

Revenue per day$328.77

Days beyond your terms25

Tied up by your own terms$6,575.34

Tied up by the delay beyond them$8,219.18

Total outstanding at any moment$14,794.52

Financing cost of your own terms$789.04

Financing cost of the delay$986.30

Tax reserved against unpaid invoices$2,958.90

Cost of the delay as a share of revenue0.82%

What each payment speed is worth

Annual financing cost at different average collection times, on the same revenue and cost of money.

Paid in	Outstanding	Annual cost	Saved against today

This is an estimate. It prices the financing cost of money owed to you. It does not price the time spent chasing payment, the risk that an invoice is never paid, or any interest you may be entitled to charge. Whether you can charge interest on overdue accounts depends on your terms of trade being agreed before the work started.

Separate the delay you agreed to from the one you did not

Offering 20 day terms is a decision to finance your clients for 20 days, and that has a cost you have chosen to accept as part of how you trade. Being paid in 45 days is a different thing: 25 days of financing nobody agreed to and nobody is paying for. Splitting the two matters because the remedies are different. Reducing the cost of your own terms means changing what you offer, which is a commercial decision with consequences for winning work. Reducing the excess means collecting what you were already promised, which costs nothing but follow-up.

The delay you control entirely

The gap between finishing work and issuing the invoice is invisible in most of these calculations because it happens before the clock starts, and for many sole traders it is the largest single component of the total. An invoice sent a fortnight after the job finished has already spent two weeks of financing before the client has done anything wrong. It requires no negotiation, no awkward conversation and no change to your terms to fix, which makes it the cheapest improvement available.

Worked example

A contractor invoices $120,000 a year across 24 invoices, so the average invoice is $5,000.00 and revenue accrues at $328.77 a day. Terms are 20 days but clients pay in 45, so 25 days of the delay is beyond what was agreed. At any moment $14,794.52 is outstanding, of which $6,575.34 is the agreed terms and $8,219.18 is the excess.

At a 12% cost of money, the agreed terms cost $789.04 a year and the excess delay costs $986.30, which is $41.10 on every invoice issued. Separately, reserving 20% of each invoice for tax means $2,958.90 is set aside against invoices that have not been paid, so the working capital requirement is larger again than the financing figure alone suggests.

How this is calculated

Revenue per day is annual revenue divided by 365. The amount outstanding at any moment is revenue per day multiplied by the average days to payment, which is the standard debtor days relationship. That total is split between the days you offer and the days beyond them. The annual financing cost of each portion is the amount outstanding multiplied by your cost of money. Cost per invoice is the annual cost of the excess delay divided by the number of invoices. Tax reserved against unpaid invoices is the total outstanding multiplied by your reserve percentage.

Related NZ calculators

Tax Reserve Per Invoice Calculator for the reserve percentage to use
Irregular Income Tax Smoothing Calculator for lumpy income
Cash Runway Calculator for how long your buffer lasts
Overdraft Cost Calculator for what the financing actually costs
Business Cash Buffer Calculator for sizing the buffer