---
title: "How Much Can I Charge For Late Fees In Canada?"
description: "Yes, Canadian businesses can add interest or a fixed fee to unpaid invoices when the customer agreed to it. Where no rate is agreed the Interest Act sets 5% a year, and the Criminal Code caps interest at 35% APR. Calculator, typical rates, and how to apply it."
url: https://www.paidnice.com/blog/late-fees-in-canada
---

# How Much Can I Charge For Late Fees In Canada?

Written by

Denym Bird
Expert verified

Co-founder & CEO of Paidnice

Denym laid out late fees on Canadian business invoices, covering the Interest Act's 5% default, the Criminal Code's 35% APR cap, typical rates, grace periods, and a calculator.

Reviewed by Ashley Schroder

Co-founder of Paidnice

Updated Nov 6, 2026 · 9 min

Listen to this article, read by Denym

Read by Denym Bird5 min

0:005:07

## Summary

Yes, late fees in Canada are legal: a business can add interest or a fixed late fee when the customer agreed to it in the terms before the invoice was issued. Where no rate is agreed, the federal Interest Act sets 5% a year, and the Criminal Code caps any interest at a 35% annual percentage rate.

- **Contract rate:** A rate stated in your terms applies once the invoice is overdue, but under section 4 of the Interest Act a monthly or daily rate is only recoverable above 5% a year if the contract also states the equivalent annual rate.
- **Default rate:** Where interest is payable but no rate is agreed, section 3 of the Interest Act sets 5% per annum.
- **The ceiling:** Section 347 of the Criminal Code makes any interest above a 35% annual percentage rate a criminal rate, in force since 1 January 2025.
- **Automate it:** Paidnice applies a written late fee or interest policy automatically once the grace period passes, on each overdue invoice or the customer's whole statement balance, compounding by default with a switch to simple interest.

## Canadian Late Payment Interest Calculator

Calculate interest and admin fees on overdue invoices based on Canadian regulations

**Canadian Late Payment Guidelines**

- Late payment interest in Canada is governed by the **Interest Act** ([R.S.C., 1985, c. I-15](https://laws-lois.justice.gc.ca/eng/acts/I-15/))
- Where interest is payable but no rate is agreed, section 3 of the Interest Act sets **5% per annum**
- Section 4 of the Interest Act limits a monthly or daily rate to 5% a year unless the contract states the equivalent annual rate; section 347 of the Criminal Code caps interest at a **35% annual percentage rate**
- Clear payment terms must be documented in contracts before late fees can be enforced

Whether that rate should compound is covered in [compound or simple interest](https://www.paidnice.com/blog/compound-interest-on-overdue-invoices), and you can work out what a specific invoice is owed with our [free late fee calculator](https://www.paidnice.com/blog/free-late-fee-calculator).

The above rates serve as guidelines only. Always ensure your late payment terms are clearly communicated and documented in your contracts and invoices.

## Results Summary

### Total Amount Due
$0.00

### Interest Summary
Total Interest$0.00Interest Rate7.95%Daily Rate0.02178%

### Admin Fee Summary
Total Admin Fees$0.00Number of Invoices1Average Days Overdue0

**Note:** In Canada, late payment terms should be clearly documented in your contracts and on your invoices. The Interest Act requires that interest rates be clearly expressed on an annual basis.

While provincial regulations may vary, most commercial contracts in Canada can include reasonable late payment charges if properly documented and agreed upon in advance.

This calculator provides an estimate based on Canadian laws and common business practices. For legal advice regarding late payment charges in your province, please consult with a qualified Canadian attorney.

Late payment is normal in Canada: a QuickBooks survey found that [61% of small businesses are owed up to CAD $50,000 in overdue invoices](https://www.paidnice.com/blog/accounts-receivable-statistics). A [late fee](https://www.paidnice.com/late-fees) agreed in your terms is the leverage that changes a slow payer’s behaviour, and this guide covers what Canadian law lets you add to an unpaid invoice.
Free: Late payment interest calculatorWork out the interest or fee on an overdue invoice.

## Is it legal to charge late fees in Canada?

Yes, it is legal to charge late fees in Canada, as a fixed fee or as interest, when the customer agreed to the fee in your contract or terms before the invoice was issued and the amount is a reasonable estimate of your cost rather than a penalty.

Canada has no single federal maximum late fee for business invoices. Late fees sit under a combination of contract law, provincial consumer protection legislation, and two federal statutes: the **Interest Act**, which sets a 5% default and requires an annual rate to be stated, and the **Criminal Code**, which caps interest at a 35% annual percentage rate, a ceiling in force since 1 January 2025. A fee that the customer never agreed to is legal to ask for but not enforceable, so the payment terms in your contract do the real work.

## What is the best practice for charging late fees?

The best practice for charging late fees in Canada has three parts: put the fee and its annual rate in your contract terms before the first invoice, allow a grace period before interest starts, and waive the first charge for a good customer who pays as soon as you ask.

**Charge a late fee.** 68% of businesses that start charging late fees get more invoices paid on time. For similar businesses that do not charge them, it is 52%.
Original dataSource: our analysis of invoice data from over 1,000 Paidnice customers. See our late fee data.

### Pick the right contract terms

Late fee terms in Canada must be agreed by the client before the invoice is issued, and the rate must be stated as an annual figure to clear section 4 of the Interest Act. Put the clause in the contract when onboarding a new client; terms added today cannot be applied to invoices already outstanding. For existing clients, send the new terms and get agreement, or build them into your ordering process. See our [Examples of Late Fee Policy Wording](https://www.paidnice.com/blog/late-fee-policy-wording-examples) for clauses you can copy.

### Make sure you include a grace period

A grace period in Canada is usually 30 days after the due date before interest is applied, while a fixed late fee, which is usually smaller, can apply sooner. Reach out to the client before the first fee lands; one call is often all it takes to get paid. The grace period shows the client you are reasonable and protects you when there is a genuine reason for the delay.

### Be reasonable, and waive the first charge if asked

A client who has never been charged a late fee before will usually get in touch when they spot the charge. If the client is apologetic and pays promptly, waive that first fee. The fee has done its job, the relationship stays strong, and the client rarely pays late a second time.

## How much can I charge in Canada?

In Canada you can charge the interest rate stated in your contract, commonly 1.5% to 2% a month (18% to 24% a year) on business invoices, or 5% a year under section 3 of the Interest Act where interest is payable but no rate was agreed. Section 347 of the Criminal Code caps any interest at a 35% annual percentage rate. For scale, the [Bank of Canada policy rate](https://www.bankofcanada.ca/core-functions/monetary-policy/key-interest-rate/) is 2.25%, unchanged since its 28 January 2026 decision, so even the 5% default sits above the central bank rate.

The Interest Act has one rule that catches many invoices: under section 4, a rate written as a percentage per month or per day is only recoverable above 5% a year if the contract also states the equivalent yearly rate. "2% per month (24% per annum)" is enforceable; "2% per month" on its own falls back to 5%.

| Situation | Rate | Source |
| --- | --- | --- |
| Rate agreed in contract, annual equivalent stated | The contract rate, commonly 1.5% to 2% a month | Contract, Interest Act s.4 |
| Rate agreed per month only, no annual figure | Capped at 5% a year | Interest Act s.4 |
| No rate agreed | 5% a year | Interest Act s.3 |
| Any agreement | Never above 35% APR | Criminal Code s.347 |

The 35% cap replaced the old 60% effective annual rate on 1 January 2025; arrangements entered into before that date keep the old cap. Provincial consumer protection legislation and sector rules, such as residential tenancies and utilities, add limits for consumer customers. The goal of a late fee is to motivate prompt payment, not to earn income, so set it high enough to deter and low enough that a court would read it as a genuine pre-estimate of your loss.

## What late fee should I charge on low invoice balances?

On invoice balances under CAD $1,000, charge a fixed late fee of $20 to $50 per invoice rather than interest. Interest on a $600 invoice at 2% a month is $12, which nobody notices; a flat $40 fee is visible on the statement and covers the real cost of chasing it.

## What late fee should I charge on high invoice balances?

On invoice balances of CAD $1,000 or more, interest is the better lever: 1.5% to 2% a month, written into your terms with the annual equivalent stated, and applied after the grace period. Working the daily figure out manually for every invoice is the reason many SMEs never charge it, which is where automation comes in.

## How do you add interest to an unpaid invoice?

You add interest to an unpaid invoice in Canada by charging the agreed annual rate, prorated for the days overdue, either as a new line on the original invoice or as a separate interest invoice. The steps:

1. State the rate on the original invoice and in your terms, as an annual figure (Interest Act section 4).
2. Wait out any grace period you promised, and send a reminder first.
3. Calculate: balance × annual rate ÷ 365 × days overdue. A $5,000 invoice at 18% a year is $2.47 a day, so $74 after 30 days.
4. Add the charge as a line item on the existing invoice or raise a separate interest invoice, and reissue the statement.
5. Recalculate on every statement until the balance is paid.

## What mistakes cost Canadian businesses their late fees?

Three mistakes put interest out of reach or open to dispute.

- **Writing the rate per month with no yearly figure.** [Section 4 of the Interest Act](https://laws-lois.justice.gc.ca/eng/acts/i-15/page-1.html) limits a written contract to 5% a year when the rate is stated per month and the yearly equivalent is missing. On a $5,000 invoice paid 60 days late, 5% a year is $41 ($5,000 × 0.05 × 60 ÷ 365). 24% a year is $197 ($5,000 × 0.24 × 60 ÷ 365). That is $156 lost on one invoice. *Fix: state the yearly equivalent in the clause.*
- **Billing compound interest when the contract says simple.** At 24% a year, simple interest on $5,000 left unpaid for 12 months is $1,200 ($5,000 × 0.24). Compounding 2% each month gives $1,341 ($5,000 × (1.0212 − 1)). The extra $141 is above the stated rate, so the charge is open to dispute. *Fix: write "simple" or "compounded" in the clause and match your software.*
- **Saying nothing until the grace period ends.** Of invoices 7 days overdue, 1 in 5 is still unpaid 180 days after the due date. At 30 days overdue it is 2 in 5. *Fix: send a reminder on the first overdue day, inside the grace period. Paidnice sends it automatically.* Source: our analysis of invoice data from over 1,000 Paidnice customers. See [when an overdue invoice becomes bad debt](https://www.paidnice.com/blog/when-overdue-invoice-becomes-bad-debt#stay-unpaid).

## How can I set up and automate late fees?

You set up late fees in Canada by choosing the fee type, writing the annual rate into a policy your customers agree to, and applying it to every overdue invoice on the same rule. Paidnice applies that rule automatically inside Xero.

![A Paidnice late fee policy charging interest at 10 percent a year, prorated per day, after a 30 day grace period, with the issue method, fee type, rate and grace period numbered](https://www.paidnice.com/images/blog/late-fee-policy-annual-rate.png)

Xero has no native late fee or interest setting, so a Xero user either adds each charge manually or connects an app. [Paidnice](https://apps.xero.com/app/paidnice/) is accounts receivable automation for Xero, and the winner of New Zealand Small Business App of the Year at the Xero Global App Awards 2026. You set fixed or interest-based fees, group customers by payment terms, and the charge lands on the existing invoice or as a separate penalty invoice.

> Two product details that matter in Canada. Paidnice’s statement interest is set as an interest rate per annum, prorated per day, which is the annual form the Interest Act asks for. Its compounding switch is on by default, so a new policy compounds unless you turn it off; where your contract says simple interest, switch it off and the charge stays simple. Customers see half as many late invoices in the first 30 days.

### How to setup and implement Canadian late fees

**Step 1. Work out the type of late fee you'll charge**

Decide whether you’ll charge a fixed or interest-based late fee and at what rate you will set it.

**Step 2. Setup your late fee policy**

Next, create a late payment policy and send it to your customers for them to agree to. For help with writing your policy, [see our examples](https://www.paidnice.com/blog/late-fee-policy-wording-examples).

**Step 3. Apply it every time.**

Apply the fee to every overdue invoice on the same rule, manually or automatically. A fee charged to some customers and not others is the one that gets disputed.

**Optional: automate your late fees with Paidnice.**

See [how Paidnice works](https://www.paidnice.com/), then sign up free with no card.

*Please note that the information found in this blog serves to inform but does not constitute legal advice. For information specific to your industry, we recommend contacting a legal professional.*

## Paidnice features in this article

- [**Late fees and interest** Adds late fees and interest to overdue invoices when you turn them on.](https://www.paidnice.com/late-fees)

## About the editorial team

Written by Denym Bird Co-founder & CEO of Paidnice

Denym started Paidnice in 2022 after customers paying late left his own business short on payroll. He has led it to $1 billion collected on time across more than 1 million invoices, and writes about credit control, late fees and getting paid on Xero and QuickBooks.

Reviewed by Ashley Schroder Co-founder of Paidnice

Ashley is a co-founder and lead developer of Paidnice and has built accounting software for more than 10 years. He builds the ledger connections that put reminders, late fees and payments into Xero, QuickBooks and ERPs such as NetSuite and Business Central. Before Paidnice he co-founded A2X, ecommerce accounting software for Xero and QuickBooks.

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