June 1, 2022
COLLECTION OF ACCOUNTS RECEIVABLE
TAKING PROACTIVE ACTION CAN AVOID MANY PROBLEMS
Accounts receivable management is a crucial function in any business. Neglecting its importance can have serious consequences on its finances.
Every business must have an effective accounts receivable tracking system. Beyond this, adopting good practices can facilitate the collection of amounts due and minimize the risks of them turning into bad debts.
Among the best practices, the agreement with your client must be clear and in writing. Whether it is a contract or a work order, all terms related to the work to be performed or the product to be delivered, the cost, payment, and interest in case of late payment should be detailed, and the document should be signed by the client.
If there is a legal recourse, the document signed by the parties can serve as evidence of the terms of the agreement. This is sometimes more challenging to demonstrate in the case of a verbal agreement.
“It is necessary to demonstrate that the client understood and accepted the terms of the agreement. However, this is not necessarily the case when these terms are only indicated at the bottom of an invoice, as they may not have received the client’s acceptance,” explains Mr. Robichaud.
Invoice
Once the work is completed or the product delivered, it is important to send your invoice to the client promptly. It should contain the information agreed upon with the client.
“A delay in sending the invoice may lead your client to believe that you do not attach importance to the payment deadline, and therefore, they will not be in a hurry to pay you,” Mr. Robichaud cites as an example.
In principle, your client should send you the payment within the prescribed deadlines. In practice, businesses usually require their accounts to be paid within 30 days of invoice issuance, but payment does not always happen within this timeframe. In such cases, a good practice is to send a statement or a reminder notice upon the due date.
You can also prominently note that the account is overdue and that settling it promptly is advisable to avoid late fees.
Demand for Payment
Have these efforts proved futile? While the desire is to preserve the relationship with the client, there are instances when it becomes necessary to send a demand for payment when the gentle approach does not work. Much more formal, this communicates to your client that legal proceedings could be initiated or that their credit could be affected if they do not settle their account.
It is advisable to entrust the drafting of this demand to a lawyer, even if only to demonstrate the seriousness of your intentions and your firm commitment to recovering what is owed to you.
Your Recourses
Still no payment? Among the options, two obvious choices are available: a non-judicial approach and a second one that requires legal recourse.
The non-judicial or informal approach involves seeking the assistance of a collection agency. The Consumer Protection Act governs the relationship between the agency, consumers, and clients, and the Office de la Protection du consommateur ensures its compliance.
“Before signing a contract with an agency, it is important to gather information and even have it reviewed by a lawyer. There are limits to what a collection agency can do with a debtor, and the fees can be significant,” Mr. Robichaud advises. Due to the collection fees charged, it is generally more advantageous to use their services when outstanding accounts are less than $2,000.
When the nature of the claim justifies resorting to the courts, you can address the regular courts, which will depend on the amount to be recovered. A lawyer can certainly assist you through the process, even if they do not represent you in court, as in the case of the Small Claims Court.
The Small Claims Division can hear your case if the amount at stake is $15,000 or less, and if your business has 10 employees or fewer. Otherwise, in the case of a corporation, it will be necessary to retain the services of a lawyer to represent you.Haut du formulaireHaut du formulaireHaut du formulaire
BUSINESS LAW EXPERTS ADVISORY BOX
In accounts receivable recovery, communication plays an essential role. An unpaid account is not necessarily a sign of bad intentions on the part of your client. Several reasons could explain a delay or a lack of payment. To understand the true reason, a call to your client can often help.
The objective you should keep in mind is to resolve the situation as quickly as possible and, whenever possible, to preserve the business relationship you have with your client, but not at the expense of your company’s finances.
In business, as elsewhere, it’s important to remember that… good accounts make good friends!
WARNING: The information contained in this article, while of a legal nature, does not constitute legal advice. It is recommended to consult with a professional for advice that will address your specific situation.