Legalese: June 2014

A large portion of my legal practice relates to the collection of bad debts for clients of mine. Through my practice, I have learned of some tips which you may wish to adopt in collecting your own bad debts.

If your business is like most, your clients often fail to pay your Invoices. Some of your clients will be known for paying their Invoices late, and you have faith that they will eventually come through and pay your account. Sometimes, therefore, you choose to make no effort to collect. This article speaks to some practical steps which can be taken in order to try and recover your outstanding accounts.

First of all, ensure that your client knows they owe you money. This step may sound simple, but many businesses fail to keep their clients up to date in terms of what is actually owed. A monthly reminder statement sent out to your clients, reminding them of exactly how much is owing, is a very good start to recovering on your overdue accounts.

Guard the integrity of your client information. I have encountered many instances where regular reminder statements were being sent out to clients, only to find out later that the statements were being sent to the wrong address or to the attention of the wrong individual at the organization. You must make sure that your client information is regularly updated and that it contains the correct information. Obtain client information at the beginning of your business relationship with your client when they are more than willing to share information with you. Obtain as much information about them as you can, such as where they bank for example. Please note that when obtaining the information of individuals you must abide by all privacy legislation, such as PIPEDA, the Personal Information Protection and Electronic Documents Act. PIPEDA is a federal statute that would apply to all of your organizations in terms of the personal information you receive from individuals in the course of business.

It is a good idea to establish multiple points of contact with your clients. Simply mailing out statements is OK, but if you fax the statements and email the statements (or even personally deliver the statements), you will find that the level of response will increase.

Interest can be an effective weapon against late payers. Most of your customers do not wish to pay interest on their overdue accounts with you. Tell them that if they don’t pay your account, interest will be added to the overdue amount. If you never agreed with your customer regarding a rate of interest, you can still charge them the applicable court rate (which in Manitoba is usually around prime).

Consider postponements and payment plans. A great many of your clients want to pay you, but simply don’t have the money. They are good people who, given an opportunity, would love to resolve matters with you. So, give them that opportunity by extending them a chance to make payments to you over time. For example, client A owes you $10,000. They tell you that their cash situation is tight and that they’ll pay you later. Ask them for $2,500 and get them to acknowledge the repayment terms for the remaining $7,500 in writing. Enter into terms which work for the client. You do not want to have a situation involving NSF cheques, as this is costly and time consuming.

When all else has failed, you can take your client to small claims court if the debt is within your province’s small claims limit. Many people represent themselves in small claims court, and having a lawyer is absolutely not necessary. Even if your debt is within the applicable small claims limit for your province, you may not want to take the time out of your busy schedule to handle a court claim yourself. In that instance, you could hire a lawyer. On smaller claims (say, under $20,000 or so), you are usually better off hiring a lawyer on a contingency basis. Some provinces do not allow you to hire a lawyer on a contingency basis. If your jurisdiction allows contingency, instead of paying legal fees by the hour or some other way, the legal fees charged can be completely tied to actual recovery. The amount, or percentage, paid to your lawyer is negotiable.