When you invoice your client, do you indicate what the interest rate for late payments is?
Did your client accept this interest rate as a term of your engagement?
Is the interest rate on your invoice a monthly or annual rate?
These are all important questions to ask yourself if you sue a client for an outstanding invoice and you claim an interest rate higher than the Courts of Justice Act (“CJA”) rate, which is currently 2.0% per annum.
If you do not have a signed contract with your client acknowledging and accepting an interest rate higher than the CJA rate, then you run the risk of a judge denying your request and awarding you only the CJA rate, despite your invoices indicating a much higher rate of interest.
Additionally, the interest rate on your invoices become unenforceable if you indicate a monthly rate of interest rather than an annual rate. Section 4 of the Interest Act states that no agreement to pay interest in excess of 5% per year is enforceable unless the rate of interest is expressed as an annual rate. What does this mean? If your invoice says 2% per month, one would assume you are claiming 24% per annum. However, if you only indicate 2% per month on your invoice, then the maximum the Court will award you is 5% but most judges will only award the CJA rate.
If you do not have a contract with your client, and the interest rate on your invoice is higher than the CJA, it may not enforceable as an invoice is not a contract and the client did not agree to any rate of interest.
If you want to charge a rate of interest higher than the CJA, make sure your client acknowledges the rate by signing the invoice or even better, have a contract that indicates rate of the interest on late payments, making that rate is an annual, or you will be out of luck if they default.
Murray Brown, Licensed Paralegal