My Client won’t pay me! What can I do? All about Collection Agencies and when to Hire One
If you don’t know what a collection agency is, you’re probably lucky and have never had to deal with a client refusing to pay you for your goods or services.
A collection agency is a company that anyone, including lenders, creditors, and business owners, can hire to collect debt from individuals who owe money. Collection agencies earn a fee from the money they collect, which provides an incentive for them to collect as much as possible. Collection agencies can be aggressive because they can call debtors over and over until the debtor responds.
If you have a client who has not paid for your goods or services, hiring a collection agency can help you get the money you are owed.
What can I do before hiring a Collection Agency?
Before resorting to a collection agency, you can send the client a demand letter (i.e. a letter demanding the money they owe you). A demand letter should be professionally written and contain information such as the amount of money owed, the date the money was owed, a description of previous attempts to collect the money, accumulated late fees, and more.
You could write your own demand letter, but it’s always best to hire a lawyer. Having a lawyer write the letter for you will ensure it is properly written and contains the essential elements. It also looks more professional to have a lawyer send the letter on your behalf and the client is likely to take it more seriously to pay you back. A lawyer can also warn the client of potential legal action to motivate the client to pay. We recommend contacting a lawyer to send a demand letter as soon as possible.
Do I have other options to collect the money I am owed?
A second option, instead of using a collection agency, is to bring the client to Small Claims Court. You can bring a client to Small Claims Court if the amount they owe you is $35,000 or less. Although it’s not necessary to hire a lawyer, you are always better off consulting one and obtaining legal advice.
Is it better to hire a Collection Agency or go to Small Claims Court?
Let’s consider the pros and cons of choosing a Collection Agency or going to Small Claims Court:
Collection Agency:
PROS:
- The Collection Agency will do the work for you – you don’t have to chase after the client;
- Likely less expensive than Small Claims Court;
- Most Collection Agencies only charge you if they collect.
CONS:
- Clients can ignore the Collection Agency;
- Hiring a Collection Agency will likely ruin your relationship with the client;
- Getting the money you are owed is not a guarantee.
Small Claims Court:
PROS:
- You will get a final and binding decision about the money the client owes you;
- The client might be intimidated about going to court and decide to pay you.
CONS:
- Expensive – there are several extra fees you’ll have to pay, for example for filing a claim, setting a hearing date, and hiring a lawyer;
- Unpredictable – it’s not guaranteed that the judge will decide in your favour and you might have to pay extra costs if you lose;
- Even if you win and the judge orders the client to pay you, you have to enforce the judgment to collect the money. This means you still might have to hire a Collection Agency to get your money.
SUMMARY
To summarize, when a client refuses to pay you, hiring a lawyer to write a Demand Letter is a good starting point. If that doesn’t work, you can choose to hire a Collection Agency or take the client to Small Claims Court.
Author Credits
Erin Kasner-Remer is a final year law student at the University of Ottawa and a 2022 EFV Legal Intern. She is interested in Business and Family Law, and can be found exploring new restaurants and cafes. Connect with her on LinkedIn.
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