My husband and I run a very small company (just the two of us) in Alberta, Canada. We have a former client who has stated that they aren’t going to pay their last bill. They fired us November 23, 2020, after we had done three weeks of work for them for that month. We had a contract with them for a monthly fee for X number of hours of work, so we pro-rated the invoice for November and sent them a bill for $1500 on December 1.
It’s March 8th today, and they are now saying that they sent us an email at the start of December stating that they aren’t going to pay this invoice. We didn’t receive that email, they didn’t follow up on it at all, and I have been sending them regular email statements letting them know that we consider the invoice overdue and we want payment. I have escalated this to phone calls now.
There is no relationship to worry about with this client - they would not give us a good recommendation now, and moving to debt collection would not make their opinion of us worse.
As far as I can see, we have three options - write off the debt and forget about it, take them to small claims court, or hire a debt collection agency. We did the work, and they fired us for bullshit reasons, so I’m not inclined to let them off the hook. If we take them to small claims court, the court costs will eat any profit; there is also the difficulty in collecting from people who refuse to pay. It looks like a debt collection agency is our only option, and I am completely inexperienced with this.
Small Claims. If you win, you’ll get paid*, if you don’t win, you’ll be out the filing fee.
*I know, I know, just because you get the judgement doesn’t mean you’ll get paid, but having an unpaid judgement hanging over you can make your life very difficult for a very long time.
ETA, if you want to try something else first, though I’m not sure it’s worth it, get a lawyer to send them a letter. Because of the added cost, I might see if I could have the lawyer explain they reneged on a contract worth [whatever the total was] and offer to settle for something more than $1500 and see what they come back with.
But, again, if it were me, I’d go to small claims, sue them for $1500, write out exactly what happened and let the judge sort it out.
ETA2: If you use a debt collection agency, you’ll get, what, like a hundred bucks? That doesn’t even seem worth the trouble.
I’d absolutely recommend a debt collection agency if you are too gentle to do the work yourself. Debt collection costs are added to the bill.
If you’re tough enough, you can do the work yourself. You just get their home and work numbers, call them up several times a day, call all the extensions if they have extension numbers, write them letters with added costs, send emails to all their email addresses, and anything else you can think of, short of threats or intimidation.
The idea isn’t to scare them or make them upset, just to make it more work for them to ignore the bill than it is to pay the bill.
Collection agencies have the advantages that it’s a third party – so the debtor isn’t scoring points off you personally by not paying --, and they have the reputation of being implacable – so the debtor doesn’t think they can get out of the debt easily – but they take a big slice for cold debts.
Bingo. The filing fee in small claims court in Alberta for a $1500 debt will be $100, and you yourself can do a lot of the legwork that tends to cost (e.g. process servers). And as Joey correctly points out, once you get a judgment, there are further steps you can take to collect. These can, but do not have to, cost a lot.
You need to start from a zero base. Forget court costs. What is the net cash you will take in if you sue and win? If you net half of it, it’s more than zero, which is what you have now. However, if you lose and have to pay court costs, then you go farther into the red.
I do not have experience with either. However, if you win the case I believe the court costs would be borne by the defendant. Generally you cannot take a lawyer into small claims court but if you have a regular lawyer, they might give you advice over the phone on how to proceed.
If you go with a collection agency, one way this is done is to sell the debt. They will pay you something like $300 up front to buy the debt outright, then they will try to collect the money and keep whatever they get. Maybe they get $1500, maybe $0; it’s their risk. I do not know if there is option for them to work on commission. There might also be an issue of proving that you are legally entitled to payment, otherwise I could hire a debt collection agency today to shake you down for $1500 and you’ve never heard of me. That is sort of a circular path if you don’t have a court judgement. You can present the contract, but debt collection is more often used for loan defaults rather than failure to pay an invoice for business services. A debt collection agency could tell you more.
And, while this may be a myth, keep in mind that statements like “pay me or I’ll sue you” can be considered a threat or coercion. I was always taught not to threaten to sue. Just request your payment and if it isn’t received, sue.
It doesn’t have to cost anything. Back when I was in college I had a roommate decide he didn’t want to live in our shared apartment anymore and just wasn’t there one day. I sued him and was awarded his portion of the costs that it took me to deal with all that. I got a check from him a few days later and that was that. About 15 years later his I got a call from his wife. They needed a letter stating that he made good on the judgement. I didn’t realize at the time that after he paid me, I was supposed to file something with the courts to let them know. I assume he didn’t know and had long since forgotten about the case as well. It came back to haunt him when he was trying to buy a house and couldn’t get a loan with the open judgement.
And, yes, I did take care of it. I printed out the forms, filled them out, signed them, had them notarized and they picked them up from me a filed them all within about 48 hours of them calling me. As much as I wanted to let him sweat for a few days, turns out, at least in WI, he’d have been able to sue me for 3x(IIRC) the amount for failing to file the paperwork in the first place.
Now, had he not paid me when I won the case, he’d still be dealing with the fallout from it and probably would have eventually found a way to get me the money just so it’s not hanging over his head any more.
The usual way it was done for the collection agency where I worked (my job was administrative work) many years ago was the creditor contracted with the collection agency to collect the debt and the agency paid the creditor 50% of the money collected on that debt. The agency never bought debts from a creditor.
Good point. The other nifty bit is that the collection agency (a well-run one, that is) will be versed in the correct and legal way to list the debt with the credit reporting agencies. Even if you do not get a penny from the arrogant prick, he’ll still be paying for his misdeed one way or the other.
And Monty raises another good point. Cat Whisperer, were you dealing with a private individual, or were you dealing with a corporation?
If an individual, you could indeed, potentially trash Buddy’s personal credit rating. But if Buddy is a corporation (e.g. “Buddy Inc.”), you could potentially trash the corporation’s credit rating, leaving Buddy himself, and his credit rating, untouched. The distinction is important, and can drive how you might wish to proceed.
Emails and phone calls aren’t enough. As you’ve stated they can be lost or ignored. Before you go to court or get or go to a collection agency, you need to start with hard copy letters, sent by certified/registered mail. Acceptance or refusal of the letters will help you claim.
Send Dunning Letters: https://anytimecollect.com/blog/how-to-write-dunning-letter/. Since you’re past 90 days due, you can start there. Then at the 120 day mark send them the final letter. Document all the dates you’ve emailed and called. The key is the more documentation you provide, the harder it is to ignore.
Aaaaaand another thing…you haven’t said (not that I’m asking) what industry you’re in. Some industries have regulatory agencies that will help you out in these situations.
For example, in the produce industry we have PACA*. If someone doesn’t pay their bills, I can call up PACA and they’ll help out. Either by pressuring the person not paying me, helping with court related issues (possibly even providing a lawyer, I’m not sure) and as a member of PACA, if you declare bankruptcy, I’m automatically jumped to the front of the line to collect what’s owed to me (don’t ask, I don’t know why).
*PACA is also a racket. They cost about $1000 a year and if you’re late on the payment there’s a $1000 late fee plus $300/day. As for why it’s a racket. They offer all this protection and you’re legally required to take/buy it. It has a very ‘be a shame of something happened’ vibe to it.
Lots of good thoughts here. I looked them up, and yes, they are a limited company.
The idea that this guy would lawyer up as soon as we sic a debt collection agency on him sounds exactly like something he would do.
I have one more idea to try - send them an email explicitly delineating what we are billing them for, and see if they still come back with just flat-out saying they aren’t going to pay.
What type of work was done and where. You might be able to place a lien against some structure. They’d not be able to sell until the lien were removed.
IANAL and IANA Canadian L. But I thought of a lien too…put a cloud on their title and it’s “pay me now or pay me later” AIUI.
Are you just starting out in your biz? Would it be worth talking to a lawyer to find out how people in your line of work protect themselves from people who up and decide not to pay?
No. Send them a hardcopy demand letter and invoice, via registered mail. They can refuse delivery, but that just adds to the documentary evidence against them. Canada Post will return your letter to you, marked “delivery refused.”
E-mail is not recommended in these matters; it is far too easy to claim that “a glitch in the software/internet/spam filter/whatever meant that we never received it.” From here on in, I’d suggest that you need a paper trail. Send a paper letter and invoice.