More times than not, service providers will submit invoices to their customers that have a term specifying an interest rate for its outstanding accounts. Several clients have inquired whether the rate of interest on an invoice is enforceable or not.
Without a written Contract with the client or customer agreeing to a specific interest rate, a service provider cannot impose a rate of interest on its overdue accounts. You do not need to have to have a separate Contract apart from your invoice. If the customer signs the invoice acknowledging the interest rate, then that would be enough to satisfy the above requirement.
However, if your written Contract specifies a rate of interest incurred per day, week or month or any period less than a year (i.e.: 2% per month), that term in the Contract is invalid.
Section 4 of the Interest Act specifies that if the interest rate in your Contract is for any period less than a year (i.e.: 24% per annum), the maximum amount you can claim from a customer is 5%.
If you sue a customer for your outstanding invoices, you can claim the interest rate on your invoice, however, without a Contract agreeing to that rate of interest, more times than not, the most the Court will award you are the Courts of Justice Act rates of interest.
If you want to charge your customers an interest rate that’s higher than the Courts of Justice Act or the 5% maximum under the Interest Act, make sure the customer agrees to that rate in writing, and that rate of interest is conveyed to the customer as an annual percentage.
Murray Brown, Licensed Paralegal