An Easy Guide to Collecting Unpaid Debts

Confirm the debt before escalating.

Reconcile the account first. Confirm the correct debtor, invoice amount, credits, payment terms, purchase order or contract, delivery or performance records and any dispute already raised.

Collection becomes harder when a demand contains an error. A clean statement of account and supporting documents show the debtor exactly what is claimed and reduce room for avoidable factual disputes.

Use early contact to identify the real problem.

An unpaid invoice may result from a processing problem, dissatisfaction, cash-flow pressure or a genuine dispute about performance. Early contact helps determine which situation exists.

Keep the conversation professional and document material representations. If the debtor proposes a payment schedule or compromise, confirm the terms in writing before relying on them.

Preserve the contract and performance record.

Keep the signed agreement, purchase orders, scope changes, invoices, proof of delivery, acceptance records and relevant correspondence. The legal question is rarely just whether an invoice exists; it is whether the underlying obligation and performance can be proved.

Where there were verbal changes, collect contemporaneous emails, messages and notes that may help explain what the parties actually agreed to do.

Use a demand that is specific and proportionate.

A demand should identify the amount claimed, the basis for payment, any contractual interest or costs being asserted, a reasonable deadline and the next intended step. Avoid threats that are not legally or commercially realistic.

A well-structured demand can create a useful settlement point and a clear record that payment was requested.

Do not ignore limitation periods.

Ontario’s Limitations Act, 2002 establishes a basic two-year limitation period for many claims, running from discovery, subject to important rules and exceptions. Debt claims can also be affected by acknowledgments, demand obligations and other facts.

Do not assume an old invoice can always be sued on later. If the debt is significant or time has passed, obtain advice about the specific limitation analysis promptly.

Assess collectability before spending on enforcement.

Winning a judgment and collecting a judgment are different problems. Before spending heavily, consider what is known about the debtor’s assets, business status, secured creditors and ability to satisfy a judgment.

A proportionate strategy may involve negotiation, security, a payment schedule, litigation or enforcement. The best route depends on the evidence, amount, relationship and realistic prospects of recovery.

Create an escalation ladder before accounts become overdue.

A business can standardize collection: courtesy reminder, overdue notice, management contact, final demand and legal review. The sequence should fit the contract and customer relationship, and staff should know when an account is too significant or disputed to handle through routine collections.

Standardization also helps show consistent records if the business later needs to explain how and when payment was requested.

Settlement can be structured, not improvised.

If the debtor proposes a compromise, identify the amount, payment dates, consequences of default, releases, confidentiality terms if appropriate, and whether security or guarantees are available. A vague promise to “pay when cash flow improves” rarely creates certainty.

For a material debt, legal review of settlement terms can be worthwhile because the settlement itself becomes a new contract that may need to be enforced.