Credit Bureau or Small Claims Court?

Ultimately, a collection agency is a toothless beast without consequences for a debtor owing a balance.  There is the stigma of receiving calls and letters, or the soft leverage of compound interest or denial of service by the client, but the major consequences a third party agency can bring to bear are listing a debt on the credit bureau, or undertaking legal action.

On January 1^st, 2004, the Limitations Act in Ontario was updated, impacting many different laws across the board.  Most significantly was the change to a small claims or general court actions, changing the maximum time to take legal action to two years from delinquency or acknowledgement of the debt.   

The Consumer Reporting Act was not changed, and still allows an outstanding amount to be recorded on a person or corporate credit bureau profile for a maximum of seven years.

A court judgment may secure a balance for an extended period of time, but the point isn’t to acquire an expensive court document, it’s to enforce payment.  To acquire a default judgment without a defense and file a garnishment will cost at minimum $400.  If a defense is filed or there are complications with serving the statement of claim, or a debtor examination is necessary to enforce judgment, this cost can easily climb to $1200.  You can certainly ask for costs with your judgment, but often a judge will only grant a portion of this expense.  And this expense can only be recovered if you are able to satisfy your judgment.

Through a third party agency, listing an item on the credit bureau costs nothing.  As long as accurate information about the debtor or company is provided, the listing will be matched to the correct credit bureau profile. 

What Action Is Best

If the owing balance is under $3000, the credit bureau is your most effective and cost-efficient manner of recovering your funds in the long-term.  If your contract or invoice allows interest, all the better.

If your account is over $3000, and you have a definite source for garnishment, then court action may be worthwhile, with immediate and tangible results.  But if the employment is temporary or transient, the odds of a defense being filed are high, or the contract or service agreement to back up the statement of claim is weak, then perhaps court action may be a risk to your company, throwing good money after bad debt.

In my experience, I have found the credit bureau to be a more globally effective tool for enforcing debts in the long run.  Court action certainly has its’ place, but on the grand scheme of things, in this current day and age a good percentage of consumers are likely to require credit within a period of seven years.  We had one client that requested our office to list their significant number of files (approximately 18,000 files) on the credit bureau for consumer debt, and we measured the return over an extended period of time.  Here are the results we tracked:

Time	Repayment %	Repayment with Interest %
< 3 months	0.1%	0.1%
3 months – 1 year	1%	1.1%
1 year – 2 years	2%	2.3%
2 years – 3 years	3%	3.5%
3 years – 4 years	3.7%	4.4%
4 years – 5 years	4.2%	5.1%
5 years – 6 years	4.4%	5.4%
6 years – 7 years	4.5%	5.8%

This client’s overall liquidation with our agency was 21%, which was higher than they had experienced with their previous agency … nearly a third of their recoveries came from the results credit bureau action.  The 5.8% recovery represented almost half a million dollars.

Summary

The right leverage for the right debtor is imperative.  If you need advice on your outstanding receivables, or you are not seeing results from your existing collection agency after a period of 90 days, odds are they are not reporting your files to the credit bureau, and should be.  Feel free to contact my office at Kingston Data and Credit, at my direct line of 226-444-5695 to discuss the right options for your collection accounts.

Blair Wettlaufer