Clear terms before the work, a bill the day it is done, a reminder schedule you never have to think about, and the one rule on late interest every Canadian business should know.
Most small businesses end up with the same awkward folder: invoices that are a few weeks overdue, from customers they like, for amounts too small to fight about and too big to forget. Chasing feels rude. Not chasing feels worse.
The fix is not a firmer tone. It is a system that does most of the asking for you, set up before the work starts. I'm Saliem Talash, I build practical tools for small businesses in Toronto, and this is the system, built on guidance from the Business Development Bank of Canada (BDC) and one short federal law.
BDC defines accounts receivable as "the money a company is owed by customers for products and services provided." It is easy to treat that number as money you have. It is not, until it lands.
BDC's benchmarking tool measures how slowly it lands with the average collection period: your average accounts receivable divided by your net credit sales, multiplied by 365. If you invoice on 30-day terms and your average collection period is 45 days, your customers are, on average, two weeks late. Work it out once for the last year. It is a sobering and useful number.
BDC also suggests reviewing receivables monthly, give or take 15 days, and adds a principle worth keeping: "The higher the risk, the shorter the period." A new customer with no history should not get the same terms as one who has paid on time for three years.
Most late payments are decided before the job starts, when nobody wrote down when payment is due.
BDC's invoicing article says to "clearly communicate your payment terms and late payment penalties." In practice, that means one short paragraph on every quote and every invoice:
When payment is due. "Due within 15 days of the invoice date," not just "Net 15."
How to pay. Every method you accept, with the details needed to use it.
What happens if it is late. A reminder schedule, and any late interest, stated plainly.
Deposits and milestones for larger jobs.
On that last point, BDC's working-capital article suggests you can "ask for a deposit with the order and then a percentage of the payment at various agreed upon milestones." For bigger projects it also suggests asking for instalments. A deposit is not a sign of distrust. It is the customer's commitment matching yours.
This is the rule many small businesses miss. Section 4 of the federal Interest Act says that when a written contract sets interest at a rate per month, or for any period shorter than a year, no interest above five per cent a year can be claimed unless the contract contains "an express statement of the yearly rate" equivalent to it. The section does not apply to mortgages on real property.
In plain terms: if your invoice says "2% per month on overdue balances" and nothing else, the interest you can collect may be capped at 5% a year. If you use a monthly rate, write the equivalent annual rate next to it. This is general information, not legal advice; if late interest is a meaningful part of your business, ask a lawyer to check your wording.
Many small businesses decide late interest is not worth the friction and use an early-payment discount instead. BDC notes that "a typical discount would be 2% for paying within 10 days." Either way, choose one and write it down.
BDC's advice is direct: "Send the bill as soon as you have shipped or completed a job." Every day you wait to invoice is a day added to the customer's payment clock, and the job feels less recent to them with each one.
A good invoice is also easy to pay. Put the total, the due date and the payment options at the top, where they are seen first. If the customer has to search for how to pay you, some of them will put it off.
The emotional cost of chasing comes from deciding, each time, whether now is the moment. Remove the decision. BDC suggests you "schedule automatic email reminders for overdue accounts," and most invoicing software can do it. Here is a simple schedule:
3 days before the due date: a friendly heads-up with the invoice attached.
On the due date: a short note that it is due today, with the payment link.
7 days late: "Just checking this didn't get lost," with the invoice again.
14 days late: a phone call.
30 days late: a written note that states the amount, the original due date, and what happens next under your terms.
The phone call matters. BDC is clear that "technology cannot replace human contact," and its glossary entry on receivables suggests sending statements and then phoning. A call often reveals the real reason: the invoice went to the wrong person, a purchase order number was missing, or the customer is having a hard month and would rather pay in two parts than not at all. Offering a short payment plan is usually better than a long silence.
BDC also warns that "the longer you remain out of contact with a customer, the less likely you are to recover the amount owed." Silence is the most expensive thing you can do with an overdue invoice.
Here is an invented case, for illustration only. A fictional one-person bookkeeping practice invoices a client $1,200 on 30-day terms. The automated reminder goes out on day 33, and the second on day 37. On day 44 the owner calls and learns that the client's new office manager never received the invoice. It is paid two days later. Nothing about the call was confrontational. The system simply made sure it happened on day 44 rather than day 90.
BDC describes selling or handing debts to a collection agency, or taking legal action, as a last resort, and notes that "the cost will be high." It also recommends keeping a provision for doubtful accounts: a realistic allowance in your books for invoices that may never be paid. Pricing slow payers accordingly, as BDC suggests, is a quieter way to protect yourself.
Terms on every quote and invoice: due date, how to pay, what happens if late.
Deposits and milestones for larger jobs.
Any monthly interest rate shown with its annual equivalent.
Invoice the day the work is done.
Automatic reminders before and after the due date.
A phone call at 14 days.
Your average collection period, checked monthly.
I keep invoice and follow-up templates among the small-business tools on my site, and write longer pieces on ZELR.
BDC: Accounts receivable (glossary)
BDC: Average collection period (accounts receivable benchmarking tool)
BDC: How to speed up invoicing to improve cash flow
BDC: Techniques for better cash flow management
Justice Laws Website: Interest Act (R.S.C., 1985, c. I-15), section 4
Drafted with AI assistance.
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