Yes, you can charge interest on a late invoice in Canada, as long as the client agreed to it before the work started and the rate is written as a yearly rate. That second part is where most freelancers get caught. Under the federal Interest Act, if your contract says "2% per month" and never states the yearly equivalent, the most you can legally collect is 5% a year. Here's how to set it up so the rate you wrote is the rate you can enforce.
Can a freelancer charge interest on an unpaid invoice?
You can, with one condition that does most of the work: the client has to have agreed to it. Interest on a late payment is a term of your deal with the client, so it belongs in the quote, proposal, or contract they accepted before you started. A line you add to an invoice after the work is done, which the client never agreed to, is a weak footing if you ever need to collect it.
In practice that means one sentence in your standard quote or contract, covering the due date and what happens after it. Clients who see it up front treat it as part of the deal. Clients who first see it on an overdue invoice read it as a fight.
Why does "2% per month" only get you 5% a year?
This is the uniquely Canadian part. Section 4 of the Interest Act says that when a written contract sets interest at a rate per day, week, or month, or for any period shorter than a year, no more than 5% a year can be charged unless the contract also states the equivalent yearly rate.
So "overdue balances are charged 2% per month" on its own can be capped at 5% a year if a client challenges it. The fix is one more clause: "overdue balances are charged 2% per month (24% per year)." Now the yearly rate is in the contract, and the monthly figure has its yearly equivalent sitting right next to it.
The same act sets a fallback for the case where interest is owed but no rate was ever agreed: 5% a year.
How much interest can you charge on a late invoice?
There's no single rate set in law for freelance invoices, so the number is whatever you and the client agree to, within limits. Common choices in freelance terms run from 1% to 2% a month, which works out to 12% to 24% a year.
The hard ceiling is the criminal interest rate in the Criminal Code, which sits at 35% a year expressed as an annual percentage rate. Stay well below it. A rate that looks punitive also makes a client less likely to pay anything at all, and a court less sympathetic if it ever gets that far. The point of a late charge is to make paying on time the easy choice, and a modest rate does that job.
If you want interest to compound, the contract has to say so. Courts award compound interest when the parties agreed to it, and rarely otherwise.
What should your payment terms say?
Short and specific wins. Here's a version you can adapt for your quotes and contracts:
"Payment is due 14 days from the invoice date. Overdue balances are charged interest at 1.5% per month (18% per year), calculated from the due date until paid."
That covers the three things that matter: a real due date, a monthly rate with its yearly equivalent stated, and when interest starts. Put it in the document the client signs or accepts, and repeat it in the payment terms on every invoice so nobody is surprised.
Some freelancers prefer a flat late fee to a percentage. That's fine too, with the same rule: agree it in advance and keep it reasonable relative to the invoice. A flat charge that's large compared with the amount owed reads as a penalty, and penalties are harder to enforce.
What if your terms never mentioned interest?
Then you're mostly limited to asking for the balance itself. If an unpaid invoice ends up in small claims court, the court can award interest on the amount it orders paid, at a rate set under your province's rules, and those rates are low. That's a reason to fix your terms for the next client, and not much help on this one.
For the invoice already overdue, the useful moves are the ordinary ones: a polite reminder before the due date, another on the day, a firmer note after it, and a call if it drags past a few weeks. Our guide on what to do when a client won't pay walks through the escalation, and automatic payment reminders take the awkward part off your plate.
Is charging interest worth it?
For most freelancers, the interest itself is small money. Its real value is the signal. A client who can see that late payment costs something pays on time more often, which means you rarely have to collect the interest at all. Pair it with a deposit on larger projects, or milestone payments on long ones, and the amount at risk at any one time stays small.
What doesn't work is a rate you never enforce. If your terms say 18% a year and you waive it every time, clients learn the due date is a suggestion. Pick a rate you're comfortable applying, and apply it.
Loot sends your payment reminders automatically and keeps your invoices and expenses in one place. It's Canadian, built for freelancers, and free to start.
Frequently asked questions
Can I charge interest on a late invoice in Canada? Yes, if the client agreed to it before the work started, in the quote, proposal, or contract. Interest that appears for the first time on an overdue invoice is much harder to enforce.
Is "2% per month" a legal late-payment rate in Canada? It can be, but under section 4 of the Interest Act, a monthly rate in a written contract with no stated yearly equivalent is capped at 5% a year. Write it as "2% per month (24% per year)" so the full rate is enforceable.
What is the maximum interest I can charge on an overdue invoice? There's no set rate for freelance invoices, but the Criminal Code's criminal interest rate is 35% a year, expressed as an APR. Common freelance terms use 1% to 2% a month, or 12% to 24% a year.
What interest rate applies if my contract doesn't set one? Where interest is owed and no rate was agreed, the Interest Act sets 5% a year. If you go to small claims court, the court may add interest at a rate set under provincial rules, which is low.
Can I charge a flat late fee? Yes, if it's agreed in advance and reasonable compared with the invoice amount. A flat charge that's large relative to what's owed can be treated as a penalty and may be hard to enforce.
This is general information and not legal advice. Checked against the federal Interest Act and Criminal Code. For a specific dispute, talk to a lawyer or your provincial small claims court.