This blog post was prepared by Harp Khukh, Cornerstone Law.
Engineers are trained to provide services with undivided attention. This focus ensures that no detail is missed; although, it leaves little time for administrative tasks, such as collecting accounts receivable. Large engineering firms have accounting departments who tackle collections. If, however, you practice at a small firm or independently, then accounts are your domain. This article is written for you!
| Good Practices to Avoid Unpaid Accounts | Good Practices to Collect Unpaid Accounts |
| · Require partial payment prior to work
· Send timely invoices and payment reminders · Set payment terms of net 15 days · Send a payment reminder 1 week after the invoice is sent, but prior to the term date · Use multiple interim invoices for large projects · Provide incentives for prompt payment |
· Send timely payment reminders
· Send a personal email and make a personal telephone call to inquire on reason for delay · Offer reasonable installment payments if client is unable to pay the full account · Provide written notice to key players for ongoing projects to advise that services may be abandoned if no payment is received |
Pursue unpaid accounts immediately. The longer you wait, the greater the likelihood of non-payment. The Limitations Act sets a two year period to pursue a legal action for the debt, which generally starts from the date the payment was due or last payment received. The limitation period may restart if the debtor makes partial payment or acknowledges the debt in writing.
For small unpaid accounts, consider a collection agency. For larger accounts, you may consider taking legal action. The following legal options are often used for debt collection.
- Demand Letter – have a lawyer send a letter for payment. The letter should set out a firm date for payment and legal recourse for non-payment. A threat of legal action may be enough to secure payment.
- The Small Claims Court – this branch of our court system deals with disputes up to $25,000. The Court’s practices and procedures are simplified to allow the general public to use this legal route without a lawyer.
- The Simplified Procedure – debts between $25,000 and $100,000 are pursued under the Simplified Procedure of the Superior Court of Justice. If the amount is above $100,000, then the regular procedure must be used. The Simplified Procedure sets limits on regular court practices and procedures to ensure the matter is processed in a cost efficient and timely manner.
- Construction Lien – the Construction Lien Act allows an individual, who provides labour or materials on a property to register a lien on the title of the land for non-payment of work. The lien forces the land owner to deal with the debt. If you were not contracted by the owner, a lien may compel the owner to pressure others to pay your account. The Act also creates a holdback obligation for all parties who have contracted others on a project. This requires the parties to withhold 10% of payment for services rendered in a holdback fund. A lien is a claim on the holdback fund, which may be another means of payment if the party that you contracted with has defaulted on payment. The lien must then be perfected by commencing a legal action in the Superior Court of Justice.
In order to lien for engineering services, the services must have enhanced the value of the land. For example, plans and specifications for a new home are considered an enhancement.
The time limits to register a lien must be carefully considered. In general, a lien must be registered within 45 days of a trigger date, which is based on various considerations defined in the Construction Lien Act. If the time limit expires, the lien right expires indefinitely.
The time limits to register a lien must be carefully considered. In general, a lien must be registered within 45 days of a trigger date, which is based on various considerations defined in the Construction Lien Act. If the time limit expires, the lien right expires indefinitely.
The legal information in this article is a brief overview of legal options. If you have an unpaid account, it is critical that you consult with a lawyer immediately to determine the best legal strategy for your situation. The considerations for construction liens and limitations are highly technical and require tailored legal advice. Be careful not to lose your legal rights because of empty promises of future payment!
This article is provided for information purposes only and does not constitute as legal advice. For any questions or concerns, please contact the author at harpk@cornerstone-law.ca.
