What do you do when you realize that your customer may not pay you the money due for your goods or services?
Aside from uttering an expletive to nobody in particular, you need to realize that this is all about cause and effect. We in the sale of goods and services industry need to understand that getting paid is a function of risk management.
Statistically, there will be some who won’t pay, either for circumstances that have snuck up and overwhelmed them or in the minority of cases because they are devious cheaters, prepared to take advantage of honest business owners.
What we can do to minimize the risk is consider the types of transactions, which we enter, and determine, which ones hold the most risk for non-payment.
Once that has been decided, then policies and processes need to be put into place to minimize the risk. Rules such as payment before delivery, bank drafts, verified credit cards might be necessary in these situations. Also pick the right credit card, if you travel much then use airline credit cards or something else depending on what is your core business.
Let’s not forget that the most important determinant is whom are we dealing with. How do we feel about their “payment credibility”?
If the little professor says be careful, then listen and act accordingly for those are probably the problem transactions. Try not to lend money to friends as that may end the friendship. If you do, try and get some security, like a registered mortgage or at least a promissory note.
If all of the above has failed to prevent a debtor-creditor situation, the following actions should be considered:
- Contact the debtor and try and work through a payment agreement. Do this as soon as you can so the debt does not get stale. Be prepared to discuss the situation with them and try to work through the problems that may be preventing payment.
- Be prepared to negotiate. As long as you don’t set a precedent which labels you as a soft touch, negotiation can put you in a better position than if you become positional and stubborn. Therefore, a discount is better than no payment at all. Please remember, know more about debt consolidation once you try to collect money, your costs of lost time, lawyers and court fees will come out of your bottom line.
Yes, you can write a letter demanding payment but unless the debtor feels the pressure of a follow-up like court action or credit reporting they may stall and ignore.
This brings up the concept of litigation. It is great to use when necessary but also costly, time lengthy and stressful. Certainly if you are owed $50,000 plus then hiring a lawyer and starting action in the SCBC makes sense if you have a winnable case and there are assets which can be attached by a judgment so that not only do you get your claim paid but also a small portion of your court /lawyer costs.
For lesser sums or cases that may be difficult to prove, the costs of litigation may make it too expensive to consider.
In B.C., one of the best options is Small Claims Court where a Provisional Court Judge will have jurisdiction to award up to $25,000. You can reduce your claim to get under this limit.
The advantages of this process are, you can proceed without a lawyer and the court provides for mediation before a trial. The Court Registry will assist in providing the forms and advice for starting an action.
To avoid big losses, when dealing with future business transactions, consider where your vulnerabilities are, make processes to alleviate them and remember all your customers, even those having problems, may be the returning cornerstones of your business.
About the Author, Bryce Jeffery
Bryce Jeffery has practiced law in BC for 28 years and been a commercial mediator for the last 14. Situated in Langley, he practices under the title, MB JEFFERY LAW and concentrates on conveyancing, mortgages, and wills and estates. Bryce's mediation practice makes him the most travelled mediator in BC with frequent stops throughout the interior, the north and Vancouver Island. He is also the author of Commercial Mediation, A Passionate Practice.
Visit his website at www.mbjlaw.ca to see how he can assist you and your business.