One of the biggest challenges for small business owners is managing cash flow. Running a business is expensive, and while none of your creditors want to wait to be paid, sometimes collecting from your customers can be a real challenge. So what can a business owner do when they are having a problem collecting the money owed by their clients?
For those in the business or repairing or improving real life items like cars or computers, Nova Scotia law includes at least one option. The Builders Lien Act includes a section that allows a business to keep, and in some cases sell, a customer’s property in certain situations. For business owners, especially mechanics, and appliance or computer repair shops, this can be a big help when a customer refuses to pay.
When a person has completed work that adds value to an item (think replacing the muffler on a car, or repairing a laptop computer so it works again), they may be able to keep that item until the customer has paid the bill. Under the Builder’s Lien Act, If a customer has not paid the bill within three months of it being due, the business owner may keep and auction off the item in order to collect the money they are owed. Any money above and beyond the amount owed must be paid to the original owner. Before a mechanic auctions off the item, they must give notice to the owner of the item, and put a notice in the local newspaper. In most cases, the actual owner does not want you to sell their property, so they may become more motivated to pay their bill and collect their property.
A recent Nova Scotia Small Claims court case from 2016 provides a good example of how this section operates. The plaintiff bought a used truck that wasn’t running. He and a friend did some work fixing it up and getting it on the road. Unfortunately, the first time he took it out on the highway, he realised his truck needed more work so he dropped it off at a garage and told the mechanic to get it running. The truck owner, a fisherman, went to sea where he could not be reached by phone, and upon his return a few weeks later, was told the repairs to his truck added up to over $1,500. The dispute centred on whether or not the mechanic was instructed to make certain repairs. The adjudicator at Small Claims Court ruled that the mechanic was authorised to do the work and that they could keep the truck until the owner paid the full amount of the bill.
In order to avoid this type of situation, there are a few things you can do to make it easier to collect money from your customers.
Be a great communicator. Provide your customers with a written copy of your policies and explain them in person too. If you regularly provide your clients with estimates, put them in writing and explain them in person. For example, if you plan to charge interest on overdue accounts, make sure you both tell your clients and put it in writing on you.
If you have a policy that you will not release your customer's item until the bill is paid in full, tell them in person and include that policy in writing on your written estimate.
Confirm all work you are doing for a customer and tell them if anything has changed. Imagine if a customer drops off their car for a minor repair, but when you look under the hood you see there is a major problem that needs to be fixed. A quick call to your customer where you explain the issue, provide an updated quote and get permission to proceed before you do the work can help avoid a dispute and most importantly keep you and your business out of court.
If you have any questions about collecting past due invoices from clients you can call us at (902) 826-3070 or email us at firstname.lastname@example.org to set up a meeting with one of our lawyers at our Tantallon law firm. You can also schedule a no commitment Issue Review Consult for $100+HST where you have the opportunity to explain your situation to a lawyer and get basic advice before deciding whether or not you'd like to retain us.
- Dianna M. Rievaj - Managing Lawyer
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