As a contractor, you work way, way too hard to let yourself get stiffed for money you have fairly earned. A primer on the ins and outs of collecting what you're due.
September 24, 2012 by Steve Payne
By Bruce MacKinnon
As a contractor, getting yourself paid on time starts at the beginning of your job, not at the end. It starts, in fact, with a tight contract. The first thing in that contract should be a stipulation of the basic structure of the agreement, laying out the work to be done and specifying that anything else is an extra that is subject to a contract on its own.
When you believe you are done, and ready to ask for payment, you have to be sure that, in fact, all of the basic work is done. The space has to be at least livable, says Shelby Whittick, a paralegal in Oshawa, Ont. who focuses her business on contracts, receivables and collections. It is a matter of liability. “Where the client cannot use the space, or the item, the contractor is going to have a problem collecting,” Whittick says. “For example, you can’t leave the living space with no electricity, or have the plumbing leaking, if the contractor dealt with these areas, even if the customer has been a pain or is abusive.”
Even if you are dealing with a clearly unreasonable client, you can’t just walk out on the job if you expect to be paid, Whittick says. “You, as the contractor, have to live with the terms of the agreement as well,” she says. “It is possible to walk away from the job if the place is livable, the electricity is on and the plumbing is done and the walls are painted. Only then do you have grounds to leave, even if you believe the customer is unreasonably and constantly unhappy with your work.”
Be proactive. Put language in the contract about late fees and collections and talk about it up front. Build a concrete foundation and rapport with your client which will in turn breed accountability. If you do wind up in court, you can then point to the agreement and the fact that the client was clearly aware of the terms.
And avoiding deadbeat clients means that you have to refuse to work for some prospective customers who give you a “sixth sense” that they may not be honest, creditworthy, or properly financed. “Not every potential client has to be your client,” Whittick says. “If you sense something isn’t right, in advance, run.” In almost all cases, deadbeat clients will trigger negative emotions
from your very first meeting with them.
Sending signals to prospective customers, up front, that you are running a serious business, is a good idea, Whittick counsels. You can start with documentation. “Try to get some identifying documents up front, like a photocopy of their driver’s licence and ensure you have a contractual clause stating this information may be used for credit purposes. It helps later if you need to go for collection help,” she says. If this feels uncomfortable, remember the last time you checked into a hotel. You were asked for ID, then, too. This simply lets the customer know that you have boundaries and that you will use their information to help you collect later if it comes to that. Good fences make good neighbors.”
Don’t be overconfident that the law is on your side. Because, if you do have to go to small claims court to enforce payment, be aware that the rules have changed in favour of deadbeats. The new maximum time limit to collect through the courts what is owing to you is two years since the last payment. It used to be six years. So if someone is determined not to pay, the best way to collect is to try to collect minimal amounts periodically to keep them on the hook. Even ten dollars here or there keeps resetting the clock and restarting the limitation period and it also nurtures your initial relationship by making that client feel accountable for the debt.
Another option, if the client refuses to pay, is to use a collection service. Here again, having identifying information on your customer is critical. Yes, it may cost you about one third of what you are owed, but is it better to have 100 percent of nothing or two thirds of something?
Going to court
Here is where you have to really decide, “Is this really worth it?” If you decide to go to small claims court, and represent yourself, you may feel that you can save yourself the costs of a lawyer ($250 per hour and up) or a paralegal (beginning at $100 per hour, on average, depending on location). But be careful if you decide to do the legal work yourself.
“Small claims court is for the layman who doesn’t know the system,” Whittick says. “But if you do go to court by yourself, you run the risk of making errors, which sets you back and slows down the process and could lessen the chances of you collecting your money. Whereas, with professional counsel, you are always going forward. A good paralegal has the expertise and experience to weave through the process for you.”
And if you do decide to take your customer to small claims court, without legal counsel, you are the one responsible for serving the customer with the court papers, letting them know they are being sued. Or you could pay a process server to do this for you. Then, in many jurisdictions, you will have to wait 20 days to let them file a defense with the court.
Before going to trial, there will be a mandatory mediation meeting between you and your customer. It’s a chance for both parties to try to come to a resolution before appearing before the judge. The length of the legal process, the date of the trial, whether there will be delays, and your total investment of time, is very difficult to determine in advance. Only you can weigh the cost of all this – in terms of hours lost on other jobs and the stress and overall hassle – if you decide
Bruce MacKinnon is the editor of PRO PAINTER magazine and a frequent contributor to CANADIAN CONTRACTOR