by Ian Mackinnon
While trying to collect outstanding accounts for my clients, I’ve heard a lot of excuses from debtors as to why they haven’t paid. Some classic ones are:
I never asked for sewer service so I am not paying for it.
I am sorry I can’t speak to you right now; I have a baby cooking on the stove.
The advertisement said “four easy payments”. I am not paying until I find it easy.
I gave my credit card to my girlfriend, but we broke up. Go after my ex.
Unless you are going to send someone out to break my legs, my bookie gets paid first!
Debtors can be very creative when trying to get out of paying for goods or services you have provided to them. In the current economic climate, there are increasingly more cases of bankruptcy and failure to pay, making it more difficult to collect the money you are owed.
There are a few ways to collect a debt owing to you, and the method you choose will vary depending on factors such as your experience with debt collection, the amount of time you have to chase your debtor, and the amount you are willing to pay to have a third party collect the debt for you.
You can personally take a debtor to Small Claims Court if the debt is for less than $25,000 (claims in excess of $25,000 must be heard in Supreme Court). You will be required to take one or two days away from work in order to attend a settlement conference or Court. This process can take many months.
Collection agencies can be used to collect the debt for you. These agencies charge a percent of what is collected – normally about 50% of the collected amount.
You can also contact a lawyer to assist with the process. Quite often a phone call from a lawyer or a letter written on a law firm’s letterhead is enough to send the message to the debtor that you mean business, and can often result in payment being made without further hassle. In some cases, a lawyer can apply to have your debt secured against property owned by the debtor; when the property is sold, you will be paid from the proceeds of sale, with interest. As well, lawyers can assist in garnishing a debtor’s bank account or wages.
The best way to avoid having bad debts is to make sure you run proper credit checks on potential customers. Set credit limits that you are comfortable with, and enforce them. Call debtors when their payments are overdue; it’s more difficult to ignore a phone call than it is to ignore your email or letter. Finally, act quickly when the debtor is late with payment; the longer a debt is outstanding, the more likely it is that you will not be able to collect on it.
Ian Mackinnon is a partner with RDM Lawyers. He practices in the area of general commercial litigation.