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Words that are worth a fortune: Learn the language of debt collection

Terms you might come across when dealing with Collection of Outstanding Debts

To make it a little easier to navigate the world of accounts receivable and debt collection I will, once or twice a month, define terms you will come across during the process of collections or a small claims court action.

Some of these terms will be familiar to some of you, others may have heard them but be unsure of their exact meaning. So simple ones or not I hope to cover them all eventually. Let’s start with fairly common ones:

Creditor: If you are owed money and have not been paid, you are a creditor.

Debtor: If you owe money and have not paid by the time payment was due, you are a debtor.

Collection Agency: Everyone knows this one right? They are the folks that call you and ask you to pay what you owe their client. So anyone you engage to collect what is owed to you is a collection agency, correct?

Well no, actually that is not correct. The person contacting a debtor can be a Collection Agency, or a Law Office (Lawyer or Paralegal) or a third party acting on behalf of the creditor.

So what is the difference?

Collection agencies are companies that are licensed by the government and have to comply with specific rules. In Ontario they would be operating under the Collection Agency Act. Each of the collectors working for them would also have to be licensed individually under the same Act.

What do they do?

They are allowed to contact debtors in writing and on the telephone and make demands for payment as long as they comply with rules under the act . They can also report a debtor to credit reporting agencies like Equifax or Trans Union .

What do they not do?

They are not allowed to file court claims or appear in court on your behalf, or take any other legal steps. Once it reaches that stage they have to assign it to a legal professional.

Law Firms– Lawyers & Paralegals -are licensed and regulated by the Law Society of Ontario. They generally do not make collection calls or send out a lot of letters. But they will send out a demand and take legal action through the courts on your behalf to recover what is owed you.

Firms that are experienced and do a lot of collections work will contact the debtor before taking any court action and make a determined attempt to resolve the matter. They also report judgments to credit reporting agencies like Equifax, and continue working to collect your money after a judgment if it is still necessary.

Third Parties – Creditors will often have someone they know or have a relationship with contact the debtor. This could be a friend, an accountant or maybe just someone who is very experienced in business.

What are they allowed to do?

Nothing. Unless they are a licensed collection agency or a member of the Law Society they are not permitted to take collection action or appear in court on behalf of someone else. Furthermore, it may make matters worse and more difficult when you finally do hire a professional.