My mother is a landlord. Maintenance, rent, renovations, conflict mediation- I watched (from as far as I could!) her manage all of this with grace and stress. Fortunately, we have never had to go through a collection agency. Actually, I don’t even know if there are such agencies in Malaysia! 

Nonetheless, the trepidation of experiencing default rent was always there. Join me for a cursory exploration of collection agencies in Ontario and if it is the right choice for you.

What is a Collection Agency?

A collection agency, also known as ​​debt collection agency or debt recovery agency, is a company that specializes in recovering unpaid debts. Creditors, such as landlords, often hire these agencies to collect unpaid rent on their behalf. In Ontario, the legal requirement for debt collection agencies is governed by the Collection and Debt Settlement Services Act (CDSSA).

Why Landlords go to a Collection Agency

A collection agency is one tool of recovering arrears. In Ontario, you can also choose to present your case at the Ontario Landlord and Tenant Board by way of filing an N4: Notice to End your Tenancy Early for Non-payment of Rent.  Read about What Happens When You Go to the Ontario Landlord and Tenant Board.

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When deciding whether to involve a collection agency or file a case with the Landlord and Tenant Board (LTB) first, it’s generally advisable to start with the LTB process. The LTB has the authority to resolve disputes between landlords and tenants, including those related to unpaid rent, property damage, and lease violations. By obtaining a formal ruling from the LTB, you create a legal foundation that can be enforced through the courts if needed. This two-step approach not only improves the likelihood of successful debt recovery but also ensures you are adhering to the proper legal channels, reducing potential legal risks and complications.

- Natasha M., Property Management Professional

Here are some reasons why landlords opt for collection agencies. It is by no means exhaustive, but it will give you an idea:

Recover unpaid rent

Some tenants miss their rent payments consistently even after mediation with landlords. In cases where tenants are no longer living in the unit but have rental arrears, landlords use the help of collection agencies to track the tenants down and negotiate payment arrangements.

Recover property damage costs

It’s not a pretty sight when you walk into your property and see destruction. The cost of repairing these damages can also be recovered with the help of collection agencies.

Credit score reporting

Collection agencies can report bad debt to credit bureaus. This will significantly lower the tenant’s credit score. A credit score sticks to your report for up to 6 years and impacts the tenant’s future rental prospects.

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Questions to ask before hiring a collection agency

To agency or not to agency? In moments of doubt, knowledge clarifies. Ask as many questions as you need to understand your needs and their services. It is hard enough to be in this situation, so it is important that the support you get actually works for you!

Here are some questions to help you get started:

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Are they licensed?

First things first, is the agency in question registered with the government of Canada? Find out by searching their business with the Better Business Bureau or with your provincial Consumer Affairs Office.

How well do they understand the rental industry?

Collection agencies may specialize in one industry and not the other. It impacts their ability to deliver results. How well do they understand the rental industry? Start with asking how often they work with landlords and if they are familiar with the Residential Tenancies Act. 

What are their recovery rates?

If they do understand the industry, how successful have they been in recovering unpaid rent? Ask for their success rates or a breakdown of their service data.

What is their fee structure?

Most agencies take a commission. This can range from 20% to 45% of the amount collected. Some do offer flat rates. Ask from the get-go what the cost is and plan accordingly.

How do they get the job done?

Every industry is unique. How do they typically approach debtors? What happens if the contact information is outdated? 

Do they provide legal representation if necessary?

If the debtor continues to evade payment, legal action may be necessary. How will the agency support you if it comes to this? Do they have lawyers specializing in tenancy law? 

Do they have skip tracers?

Debtors may have skipped town. Changed their number. Skip tracers are professionals who are tasked with finding them. Does this agency have them?

Prepare the correct documentation

If you have chosen to work with a collection agency, it’s time to ready your documentation. Some of these you may already have, and others may require some digging. In any case, always remember, DOCUMENTATION IS KEY.

Providing detailed tenant information, such as contact details and employment history, enabled the agencies to effectively utilize their resources for collecting payments. This experience highlighted the critical role of thorough documentation during the tenant rental application process and proactive engagement, demonstrating how all these elements are interconnected for successful debt recovery.

Natasha M., Property Management Professional

Here’s what you will need to have ready when working with a collection agency:

Proof of Debt

Contracts, agreements, or invoices that establish the existence of the debt. These should clearly outline the terms, amount owed, and due dates.

Communication Records

Documentation of all communications with the debtor, including emails, letters, and phone call logs. This demonstrates your attempts to collect the debt before involving a collection agency.

Payment History

A detailed account of any payments made by the debtor, including dates and amounts, to provide a clear picture of the debt status.

Debtor's Personal Information

Any known contact information for the debtor, such as their full name, address, phone number, and email address, which is crucial for the collection agency to locate and communicate with the debtor.

Verification of Debt

Any correspondence where the debtor has acknowledged the debt or raised disputes, which can help the collection agency address potential challenges.

Legal Documentation

Although a court order is not required to engage a collection agency, any legal documents related to the debt, such as judgments or liens, should be included if available.

Concluding Thoughts

Well there it is, everything you need to know about collection agencies! Just kidding. But I do hope it encourages you to find out more on your own and I REALLY hope it helps you make a more informed decision. 

The moral of this exploration is to document well and ask a lot of questions. Whether or not a collection agency can help you recover arrears, understanding how they operate can give you a sense of assurance as you make a final decision.

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Natasha M. is a Property Management Professional with over 15 years of experience, successfully managing residential units in Ontario. She is skilled in property management, accounting, collections and maintenance coordination, with a strong understanding of LTB regulations. She has extensive experience in Landlord and Tenant relations, property maintenance, and financial management. Natasha has managed a wide range of residential properties, including single-family homes, townhomes, and condominiums, always ensuring satisfaction for everyone involved.

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