Guides / Interest, costs and time limits
Interest, costs and time limits
Three questions come up on almost every debt. Can I charge interest? Can I make the debtor pay my costs? How long do I have? This guide gives the general position in Victoria.
On this page: Interest Cost of the letter Court costs Time limits Common questions Enquire
Interest on a debt
If your contract has an interest clause, you can claim interest at the rate it sets, from the date it says, on the amount overdue. Show the rate, the period and the clause in your letter of demand.
If your contract says nothing about interest, you have no right to add it to your letter. Whether interest is paid is then up to the court, after a claim is filed. Victorian courts have power to award interest on a debt, and where no rate was agreed, it cannot be more than the rate fixed under the Penalty Interest Rates Act 1983 (Vic).
After judgment, a judgment debt in the Magistrates’ Court carries interest at that rate from the date of the order.
Some debts have their own rules. Overdue progress payments under the Building and Construction Industry Security of Payment Act 2002 (Vic) carry interest under that Act, and in a Fair Work claim for pay owed under the Act, an award or an enterprise agreement, the court must include interest if asked, unless there is good reason not to.
Do not invent interest. Adding interest you are not entitled to overstates the debt, and Victorian law prohibits misrepresenting the extent of a debt when collecting it in trade or commerce.
The numbers to know
6 years
In Victoria, a claim for a contract debt generally has to be started within six years of when the right to sue arose.
Time limits
$10,000
In the Magistrates’ Court, claims under $10,000 are usually sent to arbitration.
Court costs if you sue
$500
If an arbitration award is under $500, costs are not awarded unless there are special circumstances.
Court costs if you sue
The cost of the letter of demand
The cost of a letter of demand is usually your own cost. You can recover it from the debtor only if your contract allows recovery of collection or legal costs, and only to the extent the clause allows. Different rules can apply where the debtor is an individual and the debt is for personal or household purposes. Clauses differ, so we read yours before we put any costs into a demand.
Court costs if you sue
If you file a claim and win, the court decides whether the other side pays your costs, and how much. A costs order usually covers only part of what you have paid your own lawyer. If you lose, you may be ordered to pay some of the other side’s costs. In a Fair Work claim, the court can order one side to pay the other’s legal costs only in limited cases, for example if a claim was made vexatiously or without reasonable cause.
Smaller claims have tighter rules. In the Magistrates’ Court, claims under $10,000 are usually sent to arbitration. If an arbitration award is under $500, costs are not awarded unless there are special circumstances. In a Fair Work small claim, the court can order the employer to pay the employee’s filing fee.
Time limits
Six years for most debts. In Victoria, a claim for a contract debt generally has to be started within six years of when the right to sue arose. For an unpaid invoice, that is usually the date payment fell due.
A letter of demand does not stop the clock. Sending one does not pause or extend the six years.
What restarts it. The period starts again if the debtor makes a part payment, or signs a written acknowledgment of the debt. A promise made only by phone or in person does not restart it, because the acknowledgment must be in writing and signed.
Some deadlines are much shorter:
- a company served with a statutory demand has 21 days to pay or apply to set it aside;
- a payment claim under the Security of Payment Act generally must be served before the date six months after practical completion.
A claim for unpaid wages under the Fair Work Act 2009 (Cth) generally has to be made within six years.
Do not leave a claim until the last few months. A court claim takes time to prepare.
Common questions
Have another question? Phone 1800 776 529 or send us a message.
Only if the customer agreed to it as part of the contract, before the work or supply.
Only if the promise is in writing and signed by them, or they make a part payment.
Only if your contract allows it. Otherwise our fixed fee of $440 including GST is your cost.
Law referred to
- Supreme Court Act 1986 (Vic) ss 57(2), 58(1), 60(1).
- County Court Act 1958 (Vic) s 50.
- Penalty Interest Rates Act 1983 (Vic) s 2.
- Magistrates’ Court Act 1989 (Vic) ss 21(1)(f), 100(7), 102, 105, 131.
- Building and Construction Industry Security of Payment Act 2002 (Vic) ss 12(2), 14C.
- Fair Work Act 2009 (Cth) ss 544, 547(2), 548(10), 570.
- Australian Consumer Law and Fair Trading Act 2012 (Vic) s 45.
- Limitation of Actions Act 1958 (Vic) ss 5(1)(a), 24(3), 25(1).
- Corporations Act 2001 (Cth) ss 459E, 459G.
Last reviewed: October 2026, by a Victorian solicitor with a current practising certificate. This page is general information about the law in Victoria as at October 2026. It is not legal advice about your circumstances.
Not sure what you can claim, or whether time is running out?
Send us your documents and we will tell you. A letter of demand costs $440 including GST.
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Phone: 1800 776 529
Email: info@lettersofdemand.com.au
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Office: 435 Nepean Highway, Frankston VIC 3199. We act across Victoria by phone, email and online.
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