Collection agency or lawyer: what each one can actually do

A customer has owed you $12,000 for four months and has stopped answering. You look into what to do and find two options: hand the file to a collection agency, or pay a lawyer.

The agency looks less risky. No money up front, a percentage only on success, and often a reassuring line along the lines of “if it doesn't work, we take them to court.” That last line deserves a closer look.

What an agency may do in Quebec

Debt collection is governed by the Act respecting the collection of certain debts (CQLR, c. R-2.2), administered by the Office de la protection du consommateur. An agency must hold a permit and post security; its representatives must hold a certificate.

The Office maintains a public register. Before handing anything over, you can confirm an agency holds a valid permit through the collection agency search on opc.gouv.qc.ca.

The contact rules are strict. According to the Office:

• the first contact must be a written notice of claim, followed by a waiting period before any call;
• communications are limited to certain hours, and prohibited on Sundays and statutory holidays;
• the debtor's employer may be contacted once only, solely to obtain an address or a number, and only if other means have failed;
• relatives and neighbours are in principle off limits;
• if the debtor disputes in writing and requires the creditor to go to court, verbal contact must stop;
• if the debtor asks in writing that dealings go through their lawyer, direct contact ends.

The sentence an agency may not say

Here is the point most business owners do not know, and it changes the nature of the conversation.

Among the practices prohibited by the Office is threatening the debtor with judicial proceedings if they do not pay.

An agency is also prohibited from:

• claiming more than what is owed, or collection fees in exchange for a payment extension;
• supplying the creditor with its letterhead or the text of a demand letter for the creditor to send itself;
• inducing the creditor to sue by offering to bear the costs.

Fines run from $300 to $12,000 for a natural person and $1,000 to $80,000 for a legal person, and dishonest conduct can lead to suspension or cancellation of the permit.

In other words: the threat of suit, which is the most common selling point agencies use, is precisely what the law forbids them to wave in front of the debtor.

In Ontario the framework differs but the logic is the same. The government guide for collection agencies provides that an agency may not threaten legal action without the creditor's written authority to commence proceedings, and it describes the agency's role as recommending that the creditor sue — requiring it, moreover, to notify the debtor before making that recommendation.

In both provinces, suing is the creditor's business. The agency recommends; it does not litigate.

What that changes in practice

If your debtor pays because they forgot, or because they rank their payables by who pushes hardest, the agency will do the job. Calls and letters are often enough.

If your debtor has decided not to pay — because they allege a quality problem, because they are short of cash, or because they have calculated that you will go no further — the agency reaches the end of what it can do. It will then recommend that you sue, and you will instruct a lawyer at that point, having already spent several months.

The cost is not only the percentage. It is also time: the probability of recovering a debt falls as it ages, and months spent on collection calls are months lost if the file was always going to end up before a court.

When the agency is the right choice

There are real cases where it is, and it would be dishonest to pretend otherwise.

Volume. Two hundred accounts of $400. No lawyer will handle that at a sensible cost, and the telephone is exactly the right tool.

Small, recent accounts. A $1,200 account 45 days late, from a customer who normally pays. Structured follow-up costs less than a demand letter and often works.

Accounts already written off. A three-year-old receivable you took as a loss. A percentage of a sum you had abandoned is still a net gain.

When it is the lawyer

The debtor disputes. As soon as they allege a deficiency, a delay or non-conforming work, the file stops being a follow-up exercise and becomes a dispute. And aggressive collection on a disputed file can provoke a counterclaim.

The amount justifies it. From a few thousand dollars up, the gap between a collection percentage and a flat-fee demand letter tips quickly.

Time is short. An approaching prescription deadline, a debtor liquidating assets, a customer closing one company to open another: these call for the ability to act before a court, not just to telephone.

You want an enforceable arrangement. A payment arrangement negotiated by a lawyer can be structured for fast execution on default — notably through an enforceable notarial act. A promise obtained over the phone cannot.

How to choose, in one question

Ask yourself this: is my debtor not paying because they did not get to it, or because they decided not to?

In the first case persistence is enough, and it costs less at an agency. In the second, persistence will change nothing — and the months it takes will be paid for later.