How to Take Legal Action When a Customer Doesn't Pay
Written by Karina Mateo
Small construction companies often face financial difficulties due to the large number of unpaid invoices from their clients. The lack of written terms specifying payment deadlines, late fees, or minimum payment amounts—or simply the absence of technological tools to automate payment reminders and bank reconciliations—creates problems when collecting payment for services.
This scenario is well known among Ontario's construction industry:
The good news is that Ontario law provides several legal remedies that can help contractors recover their money.
In this article, I'll explain how to proceed if your client fails to comply with the law in your favor.
Step 1: Review the terms of your agreement
Before taking any action, it’s a good idea to pause and retrace the origins of the business relationship. Every successful claim begins by analyzing how the initial contact with the client was established and how the terms of the work were agreed upon, since that is where the basis for supporting the collection lies.
Even when there is no formal written contract, emails, text messages, quotes, invoices, payment records, and evidence of work completed can help establish the existence and terms of a contractual relationship.
Please note: A verbal agreement can create enforceable contractual obligations. However, proving it may be more difficult without proper documentation.
Step 2: Consider registering a construction lien
Under the Ontario ConstructionAct, eligible contractors may register a lien against the property they improved when payment remains outstanding.
This can provide significant protection against unpaid services and materials. However, it is important to fully understand how it works, since such a lien cannot be registered indefinitely, which could leave you unprotected.
Note: In the first blog post in this series, you'll find important details about this option. See Construction Taxes in Ontario.
Step 3: Consider suing your client for unpaid invoices
Depending on the circumstances, a contractor may file a claim for breach of contract to recover unpaid amounts.
The contractor may have a contractual claim even if the construction lien rights have expired.
Other options for recovering payment: In some circumstances, prompt payment rules and progress-based payment are effective .
Each remedy has different procedural requirements and legal consequences. Determining which one to pursue depends on the time that has elapsed and the business’s strategy.
Step 4: Anticipate your client's arguments: What if they claim that your work was defective?
A common response to an unpaid invoice is the claim that the work was defective or incomplete.
As a contractor, you must be proactive and anticipate any complaints, whether justified or not. These complaints must be taken seriously, which means conducting an honest and objective self-assessment of the work.
However, a claim of defective or incomplete work does not automatically eliminate the contractor’s right to receive payment. The dispute may require consideration of the scope of the agreed-upon work, the alleged defects, the cost of repairs, and whether the contractor breached the agreement.
Step 5: Protect Your Business Before a Problem Arises
The best defense is to plan ahead. Waiting until a customer stops paying to get your paperwork in order is usually too late.
Protecting a small contractor starts with day-to-day operations, such as keeping organized records for each project. Having signed estimates, approved change orders, photographs documenting progress, correspondence with the client, invoices, and payment receipts on hand establishes good administrative habits and provides the strongest evidence to support collecting payment if a dispute escalates.
Ontario's legal system recognizes the value of their work and gives priority to protecting those who provide labor and materials in the construction industry.
If a customer refuses to pay, the real problem isn’t just the debt itself, but the lack of organized documentation or unfamiliarity with the legal tools available to collect the debt. This situation jeopardizes your business’s financial control, making it difficult to meet payroll and fulfill operational commitments due to unjustified non-payment.
Understanding your lien rights and the available legal remedies early on can mean the difference between losing your money and recovering it. If you’re having trouble collecting payments and substantiating your claims, seek specialized professional help to protect your company’s cash flow and assets.
Do you have outstanding invoices, and is your client not responding to your messages? At Immiland Law, we can help you.
Please fill out this form and provide us with the details so we can determine whether we can represent you.
At Immiland Law, we're here to help you settle in Canada legally and protect your rights.
I hope this information gives you peace of mind and helps you know how to proceed correctly.
With love,
Immiland Law Professional Corporation
