Late payment interest

When a Canadian federal buyer pays a contract invoice late, interest is not a favour you have to negotiate — under Supply Manual section 8.45, simple interest is paid automatically on any overdue amount, provided Canada is responsible for the delay.

What it is

Per the archived CanadaBuys Supply Manual section 8.45 (Interest, effective 2010-01-11), simple interest will be paid automatically on any amounts that are overdue, provided that Canada is responsible for the delay. The general conditions of the Standard Acquisition Clauses and Conditions (SACC) Manual reflect this policy, and the amount of interest is shown separately on the cheque stub or accompanying remittance advice. Interest is calculated from the day after the due date to the day before the date the payment is issued — but it is not actually paid until the contract payment itself is made.

The formula

The Supply Manual fixes the rate with a formula: Interest = Amount owed × ([that date's bank rate + 3%] × [number of days interest payable / 365]). So the rate floats with the bank rate on the relevant date plus a fixed 3% margin, and accrues per day on a 365-day year. Two things to note: the interest provisions in the contract's general conditions must be strictly adhered to, and the only listed exception is where the client requisition and the contract itself specify a longer payment period — for example, when extensive product evaluation, inspection or testing requirements are involved (typically periods longer than 30 days).

What it means for vendors

You do not need to demand interest in your invoice correspondence — the obligation is automatic if the delay is Canada's. What you do need is a clean invoice: a payment dispute over the invoice itself restarts the conversation, and interest only runs on amounts genuinely overdue. Check your remittance advice for the separately shown interest amount; if a payment was late and no interest appears, raise it with the contracting officer and cite section 8.45 and the interest clause in your contract's general conditions. Keep your delivery and acceptance documentation straight — the due date generally keys off when a properly rendered invoice is received against accepted work, which is why acceptance records matter as much as the invoice itself.

Common questions

When is an invoice "overdue" for federal contracts?

When the payment date set by the contract (and its general conditions) has passed without payment, and the delay is attributable to Canada. The contract may set a longer payment window than the usual 30 days if the requisition specifies one — for instance, when acceptance requires extensive inspection or testing — and in that case interest starts only after that longer window.

What rate applies to interest on late federal payments?

The Supply Manual formula: the bank rate on the relevant date plus 3%, applied as simple interest on a days/365 basis from the day after the due date to the day before payment is issued. The rate is not negotiable and not flat — it moves with the bank rate.

Can interest be paid before the principal is paid?

No. The Supply Manual states interest will not be paid until the contract payment is made — interest accompanies the overdue payment rather than preceding it.

How does this relate to progress claims?

The same section applies to any overdue contract amount, including progress payments. If your progress claim or progress payment cycle slips because the buyer delays, interest accrues under the same formula.

Related definitions

Progress payment · Progress claim · Contract administration · Firm fixed price contract