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Overdue Interest Formula:
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The Overdue Invoice Interest Calculator helps Canadian businesses calculate the interest owed on late payments according to standard financial formulas. This tool is essential for ensuring proper compensation for delayed payments.
The calculator uses the standard interest formula:
Where:
Explanation: The formula calculates daily interest by dividing the annual rate by 365 days, then multiplies by the number of days the payment is overdue.
Details: Properly calculating overdue interest ensures businesses are fairly compensated for late payments, maintains cash flow, and encourages timely payments from clients.
Tips: Enter the original invoice amount in dollars, the annual interest rate as a percentage, and the number of days the payment is overdue. All values must be positive numbers.
Q1: What is the standard interest rate for overdue invoices in Canada?
A: While rates can vary, many businesses use the Bank of Canada's overnight rate plus a certain percentage, typically ranging from 1.5% to 2% per month (18-24% annually).
Q2: Is there a maximum interest rate allowed by law?
A: Yes, Canada's Criminal Code sets the maximum interest rate at 60% per year. Rates above this are considered criminal interest.
Q3: Should interest be compounded or simple?
A: This calculator uses simple interest. For compound interest, the calculation would be more complex and typically requires specifying compounding frequency.
Q4: Can I charge interest on overdue invoices without prior agreement?
A: Generally, you need to have terms specifying interest charges in your contract or on your invoice. Without prior agreement, you may not be able to legally collect interest.
Q5: Are there provincial differences in interest regulations?
A: While the federal criminal interest rate applies nationwide, some provinces may have additional consumer protection laws that affect interest charges.