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Madorin, Snyder LLP has rebranded and is now Bennett Grant LLP. We are a full service law firm based in Kitchener and Listowel serving clients throughout Ontario.


Claiming Interest on Overdue Accounts

Is an invoice purporting to charge interest on overdue accounts at "2% per month" valid? Not necessarily. 


First, a supplier cannot unilaterally impose a rate of interest on overdue accounts upon a customer. A supplier is not entitled to claim interest on its invoices unless there is a prior agreement with the customer to pay interest on overdue accounts at that rate. If the customer has not agreed to pay interest on overdue accounts, then the supplier issuing the invoice can only recover interest at the nominal rates prescribed by the Courts of Justice Act.   


Second, even if there is a prior agreement between the parties to pay interest on overdue accounts, the agreement is invalid unless the rate of interest is expressed as 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 in the contract at an annual rate. If the rate of interest in the contract is only expressed at a monthly rate, then the supplier is limited to interest at 5% per year. 


Any business claiming interest on its invoices should review its practices to ensure that its claim for interest is valid.


The information contained in this article is provided for general information purposes only and does not constitute legal or other professional advice. Readers are advised to seek specific legal advice in relation to any decision or course of action contemplated.

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