Building the proper invoice

by | December 15, 2016 4:53 pm

By Neil S. Abbott
Increasingly, Ontario courts are turning to invoices as a means of not only determining the basis of a construction contract, but also establishing a legitimate account of what is due. Typically, the courts also like to see a party has made a request for payment before taking aggressive action, such as registering a lien or commencing a lawsuit.

Under the Ontario Construction Lien Act’s current structure, the issuance of an invoice is not an official pre-condition to the registration of a Claim for Lien (indeed, a claim is often advanced without there being any demand for payment whatsoever), but this may soon change. Several of the proposed changes to the act include timelines triggered by the delivery of a “proper invoice.” The proposed changes do not, however, define the characteristics of a proper invoice. In an effort to clarify this point and help businesses avoid future legal complications, this article lists some of a proper invoice’s important traits.

1.  Put your invoice in writing.
Oral demands for payment are not worth the paper on which they are written. An itemized, professionally formatted invoice is an essential investment. An unpaid debt is far more easily collected when the loan is in writing.

2. Include your correct corporate legal name on the invoice.
There is case law (e.g. City Press Inc. v. Green (c.o.b. B & G Print & Litho), [1996] O.J. No. 1823) to support the proposition that when an invoice is not rendered in the correct corporate legal name, the party delivering the invoice is, in fact, acting in the personal capacity of the individual behind the corporation. While this may seem trivial, if a claim is made in negligence, the individual could arguably be held liable instead of the company. Thus, the limited liability a corporation provides is forfeited.

3. Always identify the proper parties to the invoice.
Often, invoices are delivered to non-legal entities. Naming an improper party to the invoice can make things difficult when it comes time to sue, as it allows the corporation (i.e. the “proper debtor”) to argue the services were not rendered to the legal entity in question. Ensuring one’s invoice includes the right name will also help a lawyer more easily identify the correct legal entity to sue to begin with.

4. Set out terms and conditions on the back of your invoice.
In law, there is a principle called “battle of the forms,” which essentially asserts the form delivered last (with some exceptions) forms the basis of a contract. With this in mind, the invoice should set out:

• the terms under which the payment is being made;
• limitations of liability and warranty;
• restrictions in product return; and
• time and deadline for complaints, back charges, and choice of law.

5. Describe what you are invoicing for.
Generic or non-descriptive invoices are hard to support in court. To ensure expedient payment, it is important to be as descriptive as possible on the invoice, detailing what materials were delivered, the date of delivery (for lien calculation), and linear/quantity costs, as well as any additional charges, such as services charges, stocking fees, and labour charges. If a dispute arises, a detailed invoice also helps ensure those items for which there is no dispute can quickly be settled.

6. Clearly define when you expect the invoice to be paid.
Some invoices are due on demand, whereas others are due net 30 days. In any event, the invoice should be due well in advance of any lien expiry dates. This way, in the event of non-payment, justification for registering a Claim for Lien is supported. (The current lien period is 45 days.)

7. Deliver your invoices on a timely basis.
Although some contracts only provide for invoicing on a milestone basis, I still recommend delivering your invoices at least 15 or 30 days in advance of the expiry of any lien period. In doing so, you will be conveying to the payor your view of what should be paid and establishing the details for payment. Timely rendering of invoices means timely payment.

8. Establish an appropriate interest rate on your invoice.
Overdue payments are subject to interest, so it is important to establish your interest rate in your invoice. It is quite common to see invoices with rates of two per cent per month or more. If you fail to set a rate, it will default to five per cent per annum in keeping with the Canada Interest Act. The courts are willing to freely allow parties to contract and award interest.

Conclusion
In addition to the points in this article, it is important to ensure you use lawyers as resources whenever necessary. Engage them to draft proper invoices, or to review your invoices to make certain they are up to date and in compliance with what the courts will soon be determining is a “proper invoice.” This way, it is possible to take full advantage of the proposed changes to the Construction Lien Act.

Neil S. Abbott is a partner and leader in Gowling WLG Construction and Engineering Practice Group.  He is based in Toronto, but has argued cases in six provinces and territories.  He is a Certified Specialist in Construction Law by the Law Society of Upper Canada (LSUC), and is ranked in both Lexpert and Best Lawyers in Canada for Construction Law.

Source URL: https://www.constructioncanada.net/building-the-proper-invoice/

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