What You Wish You Knew Before Letting the Customer Keep YOUR money.

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Why do you allow customers to keep your hard earned money?  CBC News recently reported ‘Industry estimates put the cost of unpaid wages and materials for the construction trades at $300 million a year in Canada’.  I quote this statistic because a common answer is the contractor is essentially embarrassed that they aren’t getting paid.  In my experience, it isn’t typically the contractor who’s at fault – the customer has ‘invented’ reasons why they won’t pay.  So, what can you do about it?

You’ve all heard of the Builders’ or Construction Lien, but it’s not always your best bet for walking away with the most money.  For starters, they are very time sensitive.  Each province has its own rules, but the window to file your Lien is only about 45-60 days after ‘substantial completion’.  If you miss the deadline, your ability to file a Lien expires.  They are also reasonably technical.  Most people will require a lawyer.  Ideally the Lien is incentive enough for the customer to pay.  However, a Lien only has an immediate incentive if the customer is planning to sell or they need their next construction mortgage draw.  It’s also very short lived (approx. 45 days).  To keep it in place, you must ‘perfect’ it.  That’s formalizing the Lien into an actual lawsuit.  This involves another trip to the lawyer’s office and is the first step in a lengthy and costly Supreme Court action.

An alternative first step is the Demand Letter.  A lawyer writes a letter which says, ‘I’ve reviewed the file.  I think my client is right, so pay within ‘X’ days or we’ll sue’.  This letter will cause many customers to stop playing games and pay in full.  They realize you’re not going to let it drop and they don’t want a lawsuit they know they won’t win.  At the very least, it may start a conversation that could lead to an acceptable resolution.

If you’re not owed a huge amount, Small Claims Court is often a great option.  In many places you can be in front of the judge in as little as two months.  You often get a decision the same day as your hearing.  You can represent yourself from start to finish or enlist the help of a lawyer.  In many provinces you can claim up to $25,000.  Interestingly, even if you are owed more than the limit, you can reduce your claim to be heard in Small Claims Court.  You would choose this route because the savings on legal fees would be more than the amount you reduce your claim by.  Your issue also gets resolved significantly faster than taking the matter to Supreme Court.

For a Supreme Court action, you’ll need a lawyer.  Supreme Court is laden with red tape and costly, required procedures.  Be sure your lawyer is very clear upfront about the legal costs, how long it will take to get a decision and your realistic chances of success.  Just as important, be sure to discuss the likelihood of actually collecting if you win.  In debt collection, winning is only half the battle.  You also have to enforce the order.

Once a judge has determined you’re right, the next, often more challenging, step is actually collecting.  Most debtors will not simply write you a cheque – you have to enforce against them.  You can register the judgment at the Registry of Deeds.  This will prevent them from selling/mortgaging their property.  You can enlist the help of the Sheriff’s department to garnish wages and empty their bank accounts.  In extreme cases, you can repossess their personal property.  There is a cost to all of this and if your debtor has no assets you are out of luck.  The bottom line on your bottom line is, you have options.  Learn what they are and make an educated decision.

Don’t let the customer keep YOUR money any longer!

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