Author: Michael Lebovic

In our last post we discussed special features of collection agencies and we started to examine how they are different from law offices that specialize in collection. Let’s take a deeper look into the subject.

Collection agencies are companies specially licensed to contact debtors and are obliged to comply with
ministry rules. In Ontario they are regulated by the Collection Agency Act. Every one of the collection
staff that works for them has to be personally licensed under the Collection Agency Act.
How do they work?
They are allowed to reach out to debtors either by writing them or by phoning them and request
payment for past due invoices, but they have to follow the rules laid out in the Collection Agency Act.
They will also file a report with a credit reporting agency like Equifax or Trans Union .
What they can’t do?
They cannot file a claim in court or make an appearance in court for you. They cannot take any other
legal steps. When a file gets to the point where court is necessary to collect a debt they are obliged to
turn it over it to a lawyer or paralegal.

In our next post we’ll discuss how lawyers and paralegals can help you with debt collection.

Continuing our discussion from the last post, does anyone hired to collect monies owed to you is a collection agency?

Well not necessarily, the person writing or calling a debtor can be a Collection Agency, or it might be a
Law Office (Lawyer or Paralegal) or a third party acting on behalf of the creditor.

How are they different?
Collection agencies are companies specially licensed to contact debtors and are obliged to comply with
ministry rules. In Ontario they are regulated by the Collection Agency Act. Every one of the collection
staff that works for them has to be personally licensed under the Collection Agency Act.
How do they work?
They are allowed to reach out to debtors either by writing them or by phoning them and request
payment for past due invoices, but they have to follow the rules laid out in the Collection Agency Act.
They will also file a report with a credit reporting agency like Equifax or Trans Union .

In our next post, we’ll discuss the work of a collection agency, and the unique capabilities of a law office that is specializing in debt collection. Hoping to see you soon…

As promised, we continue to educate our clients and the general public about important issues and terms related to the debt collection industry.

Today we’ll define a very basic yet extremely important term: collection agency.

When you look for a trusted collection professionals, it helps if you know what to look for.

Collection Agency. Everybody is familiar with this term right? They are the ones that call and ask you to
pay their client. So anyone hired to collect monies owed to you is a collection agency, right?

Well not necessarily, the person writing or calling a debtor can be a Collection Agency, or it might be a
Law Office (Lawyer or Paralegal) or a third party acting on behalf of the creditor.

What are the main differences, and which of these will be a better choice for you?

We’ll continue this discussion in our next post. Stay tuned….

Every week we will define and try to explain different terms that you might see as you make your way through the process of debt collection, accounts receivable and the Small Claims.
Many of these words will be familiar to some of you, or you may have heard them but are not sure
exactly what they mean.
Hopefully we get to all of them, one by one:
We’ll begin with the more familiar ones:
Creditor. Is the one owed money. If you have given your customer credit and have not been paid, you
are a creditor.
Debtor: If you owe someone money and haven’t paid them by the due date, you are a debtor.

How does a collection agency work? And how is it different from a law office specializing in debt collection? You’ll learn the answers to these questions in our next post.

1. Give your client a quote in writing so there wont be any misunderstandings.
2. Write up an agreement to at least cover important areas like:
   The scope of the job to be performed or the service to be offered.
   What, if any, is the timeline for the work or is there a deadline ?
   What happens if there are extras asked for beyond the original request?
   When and how will the client / customer pay you?
   What if there is a cancellation? How will that unfold?
3. Keep an eye your accounts receivable and send reminders or statement of
   account out to them at 60 and 75 days when the account’s past due. Let them
   know that at 90 days delinquent accounts are sent to a 3 rd party if payment has
   not been made.

I highly recommend avoiding going to court if you can.

But just in case a court action cannot be avoided you should be prepared.

How soon should you prepare?

Even before you know there is a problem.

By having the right intake and processing systems in place your job will be more than half done should you ever be in a situation where you have to file a claim in court.

Before you grant credit to your clients take the following basic steps.

Do this even with current clients if you have not done it yet; especially if they have been paying you in cash.

Cash is good. They used to say cash is king but it could come back to bite you if that account that was so good for years suddenly goes sideways and you are owed monies.

Whether it is a company or your customer is a consumer:

• Get copies of photo ID (preferably two)

• Get their home as well as the business address.

Why do you need this? (they may ask)

Because if you give them credit you want to protect yourself.

Get a copy of a VOID check – it can be very useful down the road.

Lots of folks communicate by text now. It’s fast and It’s convenient. But it is not great should you have collection problems later on.

If you love text, use that by all means BUT use email for all the important stuff. For example: when you ask for payment. Scope of work or size of the order. Changes to orders or work. You get the idea.

And NEVER rely on just a phone call for anything important

We all appreciate getting new business and we especially appreciate getting new clients. We might also
appreciate customers that pay in cash. That said, these days it is more important than ever to exercise
caution when extending credit.
If you have a cash and carry business or require paymen in advancet you can skip this post.
For those of us who are in a situation where we need to extend credit to stay competitive, I bring you
this tale of caution
One of our clients, a very busy manufacturer, had a new customer place a substantial order which they
then came to his premises to pick up. Everything went very smoothly, they paid for the order in cash and
took the material.
They were not asked to fill out a credit application nor to provide any further information then was
found in their email signature / letterhead.
Over the next 6 weeks they placed 6 more orders – all by email – which were filled and were to be
picked up when ready.
Though the orders were filled as they were received they were not picked up until the end of week 6
when the customer rushed in and took them all at oncebut did not pay for them, leaving a $25,000.00
balance.
With all of the activity in the warehouse no one noticed that this customer had no account set up.
Follow-up calls and emails went unanswered for months and our office had to be retained to collect the
monies owed.
Leaving aside the warehouse slip-up, what is needed with new clients is complete information on the
company, its principals, bank information and history.
At the end of the day a client should have a proven track record before you grant credit.
If you’re not comfortable granting credit you have the option of doing business on a COD basis or asking
for the owners to sign a personal guaranty.

Getting new business, whether from an established client or a new customer, is the goal of every business, but how you process that business can mean the difference between growth and painful cashflow problems.

We all know what we need to do but we often get so busy that we start taking shortcuts that can come back to haunt us. Don’t allow customers to rush you into skipping steps that will not only protect you but your customer as well.

Take the following advice and you will avoid 90% of your collection problems
Step 1 – send a written quote
Step 2 – make sure your customer signs off on it or confirms approval in writing
Step 3- have a written agreement that nicludes these important basics:
a) Who are the parties
b) what is the scope of the work
c) what is the total cost before tax
d) if there is a deadline, what is it?
e) when and how does this have to be paid for?
f) what happens if payment is late? Will there be interest charged?
g) What happens if there’s a cancellation or a return?
h) is there a personal guarantor or indemnifier?
Step 4 – (if applicable ) ensure all changes and/or extras requested are confirmed in writing including
their additional costs .
Step 5 – Recap any problem that arises and their resolution in an email to your client / customer.

I highly recommend avoiding going to court if you can.
But just in case a court action cannot be avoided you should be prepared.
How soon should you prepare?
Even before you know there is a problem.
By having the right intake and processing systems in place your job will be more than half done should you ever be in a situation where you have to file a claim in court.