It is an industry standard that suppliers charge a monthly interest rate of 2% to its customers on overdue accounts. The Interest Act, R.S.C., 1985 states that without a prior agreement the supplier is limited to interest at 5% per year, a mistake that could cost the supplier thousands and may result in deductions to the principle amount or interest.
Firstly,the Interest Act states that a supplier is not entitled to claim interest unless there is a prior written agreement with the customer to pay interest on overdue accounts. 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 when an action is commenced in court.
Secondly,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 Section 4 of the Interest Act, R.S.C., 1985, c. I-15 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.
Thirdly, if any sum is paid on account of any interest not chargeable, payable or recoverable under section 4, the sum may be recovered back or deducted from any principal or interest payable under the contract.
Conclusion: To claim interest in accordance to industry standards,be sure that a prior written agreement with express terms concerning interest is in place.