Even though, Apple has created an app for the collection of overdue accounts, the best practice still remains to avoid having an overdue account by demanding payment promptly.

Every time you provide goods or services that a customer doesn’t pay for immediately, you are loaning that customer money. Think like a bank. Don’t loan your money to someone unless you have a reasonable prospect of having the loan repaid.

GET CUSTOMER INFORMATION UP FRONT
The time to get credit and account information from new customers is before you open the account, deliver the goods and extend credit. Customers who are good credit risks won’t mind going through a brief account-opening routine before they can get their goods. At a minimum, you should collect the following information from the customer:

• Customer Name (the full company name, or the correct spelling of the proprietor’s first and last name, and any business style names used)
• Customer Type (individual/sole proprietor, partnership, company)
• Billing address and contact information (work and home phone numbers, e-mail addresses, etc.)
• Other locations where the customer does business
• Banking information (if required)

Update this information annually for all your customers. If problems occur, you will want to know where to start your collection efforts, and where your customer has its assets.

DO PROMPT CREDIT & INFORMATION CHECKS
Depending on the type of business and the amount of credit extended, you should do one or all of these searches as soon as you open a new account:

• Credit check with a Credit Bureau
• Corporate Search with Federal or Provincial government
• Insolvency search
• Bank Act search
• Personal Property Security Act Registry search

Don’t wait six months to get around to these. By then, you may already have a bad debt.

GET SECURITY
For large transactions, consider having payment assured with a letter of credit from a bank, or having the customer execute a security agreement under the Personal Property Security Act. Your lawyer can help you put either of these documents in place.

DON’T WAIT TO CALL
When an account is overdue, call the customer immediately and ask for payment or discuss payment options. Try to resolve any issues, complaints or disputes early. Keep copies of all letters, faxes, telephone conversations and other documents that will show that you have tried to resolve the problem.

If the call doesn’t work, contact your lawyer to discuss sending a demand letter.

DECIDE ON LITIGATION EARLY
If the demand letter doesn’t prompt payment, then you must decide how much you are prepared to invest to collect the unpaid account. If you are owed less than $25,000 then you can proceed in Small Claims Court, a less formal court that allows claimants to represent themselves, and avoid the cost of hiring a lawyer.

If the debt is more than $25,000, then you must bring an action in the Ontario Superior Court. If the unpaid account is owed to a company, then your company must be represented by a lawyer.

Don’t put this decision off. Today’s collectable claim can quickly become an expensive lesson in insolvency law.

ENFORCEMENT PROCEEDINGS
Writ of Seizure and Sale
Once you have obtained a judgment from a court, you can ask the Sheriff to seize and sell enough of the debtor’s real and personal property to pay the amount of the judgment, with interest. This is done by having the court issue a document called a Writ of Seizure and Sale (or writ of execution).

However, the Sheriff can only seize items that belong to the debtor alone, and certain items are exempt from seizure (certain personal items, as well as tools or vehicles required by the debtor for his job or trade). Also, the Sheriff only operates within a specific county. If the debtor has assets in another county, you must take out a writ in that other county.

Garnishment
If the debtor has a bank account or receives payments of any kind from any third party (e.g., a salary from an employer) then you can obtain an order of garnishment that requires the third party to pay that money to the local Sheriff’s office instead of to the debtor. Bank accounts may be seized under a writ of seizure and sale or by garnishment.

Remember that the debtor’s property or income may be pledged as security to another creditor. Therefore, your seizure or garnishment as an unsecured creditor may be thwarted by a prior security interest.

LEGAL ADVICE
Questions about collecting specific accounts should be discussed with your lawyer. However, the key to making that conversation productive is to have it early in the process, before your overdue account has become a write-off.

Marcia A. Green is a lawyer at BrazeauSeller.LLP. She practices in the area of commercial and construction litigation. Marcia can be reached at 237-4000 ext. 228 or by e-mail [email protected].