Collecting the interest you charge on your invoice

Many accounting packages allow businesses to input a rate of interest that is put on every invoice sent out.  Often the rate is expressed as a monthly amount, for e.g. 2% per month.

Unless the interest is expressed as an annual amount, for e.g. 24% per year,  this is a violation of the Canadian Interest Act and a Court will not enforce the rate.  Instead, in Ontario, you’ll be awarded the Courts of Justice Act Rate.  At the time of writing this Blog, that rate is 1.3% per year for pre-judgment interest and 3% per year for post- judgment interest.

Even when the rate is expressed as an annual amount on the invoice, unless you have a signed contract by the debtor to pay that rate, many Judges exercise discretion to reduce the rate to the dreaded Courts of Justice Act Rate.

Yes, it feels like a “technicality” but it is the law.  It is worth taking the time to review your invoices and business contracts with your Business Lawyer to be sure the rate you’re charging is something that can be enforced, should you need to sue on it.

Inga B. Andriessen JD