1. What is Simple Interest on Overdue Invoices?

Simple interest is a straightforward method to calculate interest charges on overdue invoices in Canada. It is calculated only on the principal amount (invoice value) and does not compound over time.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( P \) — Principal amount (invoice value in CAD)
• \( R \) — Annual interest rate (%)
• \( T \) — Time period (years)

Explanation: The formula calculates the interest amount by multiplying the principal by the interest rate and time period, then dividing by 100.

3. Importance of Interest Calculation

Details: Accurate interest calculation is crucial for businesses to recover appropriate compensation for late payments and maintain healthy cash flow.

4. Using the Calculator

Tips: Enter invoice amount in CAD, annual interest rate in percentage, and time overdue in years. All values must be valid positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is the legal interest rate for overdue invoices in Canada?
A: The interest rate varies by province and contract terms. Many provinces have statutory interest rates, but parties can agree to different rates in contracts.

Q2: Can interest be charged on overdue invoices without prior agreement?
A: In most Canadian jurisdictions, you need to have a written agreement or include interest terms on the invoice to legally charge interest.

Q3: How is partial year interest calculated?
A: For partial years, convert the time period to decimal years (e.g., 3 months = 0.25 years, 45 days = 0.123 years).

Q4: Are there maximum interest rates allowed in Canada?
A: Yes, Canada's Criminal Code sets a maximum annual interest rate of 60%. Rates above this are considered criminal interest.

Q5: Should GST/HST be charged on interest amounts?
A: Generally, interest charges on overdue accounts are not subject to GST/HST as they are not considered a supply of goods or services.