Payment Letter and Recovery: 5 steps to get paid

  • Recouvrement de factures impayées

Someone owes you money. You don’t know if or when to send an official payment letter? You don’t want to pay a lawyer? Here are 5 tips to optimize the collection process and your receivables.

1) Start with the least aggressive collection methods

Sometimes, there is no intention for a person NOT to pay. Your debtor may have lost your bill or simply just didn’t have time to pay it. You should then start by sending a reminder letter. This simple reminder will be sufficient for the majority of cases, and since it is a polite way to reach out, it will help to maintain a good relationship with your business partners. We recommend that you don’t send more than three reminders, after which it is possible that the debtor won’t take you seriously. If the amount is worth the squeeze, it may be worthwhile to also make a phone call.

Practical tip: You don’t need to send this reminder by registered mail. A simple email is enough.

2) Send a payment letter

If you don’t get paid, the second step is to send a payment letter, also called a “demand letter”. You can draft it yourself, but sometimes it’s best to consult a lawyer, or at least an automated system such as, for two reasons: (1) the credibility of the threat: an official letter generally has more weight; (2) it may be important for you to be guided through the steps in order for the demand letter to be effective. To prove that it has been received, you must use a mailing system that will ensure that you have proof of delivery. If the debt is substantial, you should consider having this letter delivered by a bailiff: the impact will be stronger. To learn more about the demand letter, click here.

Practical tips: to reduce your costs, we suggest you send the payment letter by registered mail. We also advise that you use a online tool to guide you, because on average, this kind of tool is ten times cheaper than a lawyer. Keep in mind that over 95% of conflicts settle out of court. Often, showing the other party that you are serious with an official letter will be enough to make them settle. The opposing party will consider the cost and hassle of going to court in their decision process.

3) Negotiate if necessary

The objective of debt collection is to recover the maximum amount of the unpaid invoices. Often, the threat of “dragging someone to court” will ensure that this person will pay. However, this is not always the case. Today, a two to three day civil trial costs, on average, more than $20,000. In addition to that, you are never sure to win your case and being represented by a lawyer could be expensive. We therefore suggest that you use all the tools at your disposal to avoid these costs. BidSettle allows you to negotiate online, and to resolve your disputes amicably.

Practical tips: even if you have doubts about the other party’s intentions, maintaining an open communication channel at all times (24 hours/7 days) could increase your chances of settling. Don’t get attached to the righteousness of your claim. At the end of the day, what matters is getting paid. Hence, give negotiation a chance.

You may not want to negotiate before sending a payment letter. The payment letter may be able to get you the full amount. We suggest you go through the steps in an orderly manner.

* Costs, according to the magazine Canadian Lawyer.

4) Submit a legal action at the courthouse

Even if you don’t want to go trough the whole process, filing your legal action can push your debtor to pay you. If you didn’t get the attention of the other party with a payment letter, you will certainly have it now.

Keep in mind that a trial could also cost the opposing side a lot of money. This statement certainly applies if you have solid evidence of an unpaid invoice.

Small Claims Court is a way to minimize your expenses because you don’t need to hire a lawyer. In addition to that, deadlines are shorter and the procedure is less complex, allowing you to do a big part of the work yourself.

The maximum amount for small claims in Quebec is $15,000. In Ontario, the maximum is currently $25,000 and in Alberta, it is $50,000. It varies from one jurisdiction to the other.

Don’t forget that it is important for you to keep track of all transactions with the other party: e-mails, contracts, bills, etc. Keep your paper trail; it may very well come in handy later on.

Practical tips: BidSettle offers a turnkey service. Depending on the information that you provide, BidSettle will automatically generate the necessary letter and will handle all the mail exchanges. This also allows you to have a more credible legal action and it is built according to best practices.

5) Keep statistics about your collections

If you often have debt collection issues, it is important for you to optimize your ways of recovering the money that is owed. The best way is to focus your efforts on what actually works. You may lose less time and energy by quickly sending a demand letter and/or legal action. After several attempts, you will be able to identify what works and what doesn’t. You can then shorten your procedures to focus on what is efficient.

Practical tips: to minimize your accounts receivable, we suggest that you develop clear policies and make your clients sign clear and simple contracts. Besides serving as evidence, you will be able to show the contract to your clients and remind them of their obligations.

If you have strong data, you may also be able to optimize the bidding process. You may, for instance, find out when is the best time to send a payment letter and how to optimize returns.

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