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Collecting debts

Region: Ontario Answer Number: 230

Sometimes a business is owed money either by an individual or by another business. The person or business who owes you money is called a debtor and you are called the creditor. If you have trouble getting the money you are owed, there are several steps you should follow.

Contact the debtor

First, always contact the debtor, either by calling or sending an email. The debtor may only need a friendly reminder of the money owed, and you should always try to be on good terms with the people you do business with. If a phone call or email does not work, you can send the debtor a letter detailing what they owe you. The letter serves as a formal notice of the debt, and it may be required before you try other means of recovering your money.

Other options

If a phone call, email and a letter do not work, you have several options. You can hire a lawyer to try to collect the money on your behalf or, you can take the debtor to Small Claims Court if the amount you are owed is $25,000 or less or, you can call a collection agency to take over recovery of the debt. If the collection agency recovers some or all the debt from the debtor, the agency will take a percentage of the money recovered as its fee. Finally, you can consider writing off the debt. Sometimes the amount of the debt is not worth the time, effort and expense involved in collecting it.

If you have a security interest in the debtor’s assets

If you have loaned money and have taken the debtor’s assets as security, for example their car or equipment, you may be able to seize and sell the assets. This means that you can take possession of the asset, sell it, and take the money you are owed out of the proceeds. Any extra money from the sale of the asset must be returned to the debtor.

Debt collection is an important business matter. You should have a debt collection procedure in place to make sure that your business does not experience cash flow problems.

For more information about debt collection while operating a business in Ontario, visit the Ministry of Government and Consumer Services.

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