Overdue payment

How BC law treats it

Interest on an overdue amount depends on the contract. If the agreement or accepted terms provide for interest, that rate applies. Under the federal Interest Act, RSC 1985, c I-15, s. 4, if a rate is stated for a period shorter than a year (such as 2 percent per month) without an equivalent annual rate, no more than 5 percent per year can be recovered. Without an agreed rate, the court can award pre-judgment and post-judgment interest under the Court Order Interest Act, RSBC 1996, c 79. Charging interest above the criminal rate in s. 347 of the Criminal Code, RSC 1985, c C-46, is an offence. Under the Limitation Act, SBC 2012, c 13, a claim for an unpaid debt must generally be started within two years after the claim is discovered (ss. 6 and 8), which for a debt is usually the day after payment was due. A written acknowledgement of the debt signed by the debtor, or a part payment, restarts the two year period (s. 24). The usual path is a demand letter, then a claim in the right forum: the Civil Resolution Tribunal for claims of $5,000 or less, Small Claims Court in the Provincial Court for claims over $5,000 up to $35,000, and the BC Supreme Court above that. A judgment can be enforced by garnishment, by registering it against land, or by seizure under the Court Order Enforcement Act, RSBC 1996, c 78. When collecting from individuals, Part 7 of the Business Practices and Consumer Protection Act, SBC 2004, c 2 restricts collection practices.

What it means for your business

Unpaid invoices are the most common legal problem for small BC businesses. Clear payment terms with an annual interest rate, a firm follow-up process, and a written acknowledgement from a slow-paying customer all improve recovery. Waiting too long risks both the limitation period and the customer's solvency. Contractors also have builders lien rights, with strict short deadlines, that should be considered before relying on an ordinary debt claim. Example: A Coquitlam IT services company's invoices state interest at 18 percent per year on overdue accounts. When a client falls three months behind, it sends a demand letter and then files a Small Claims notice of claim for $22,000 plus contractual interest.

Risks and common mistakes

Stating interest as a monthly rate without an annual equivalent, capping recovery at 5 percent per year. Adding an interest rate to an invoice that the customer never agreed to. Letting more than two years pass without suing or obtaining a written acknowledgement. Filing in BC Supreme Court for a claim that belongs in the CRT or Small Claims Court. Using threatening collection tactics that breach consumer protection rules.