Andrew Wells is the founder and CEO of Pinch Financial Inc.
To grow our thought economy and foster innovative startups, we need greater accountability. It's the cornerstone of any relationship, yet there is no mechanism in Canada, outside the courts, for businesses to hold one another to account.
I know this from experience.
When my startup sent its first invoice, my business partner, our advisors and I celebrated with cheers and toasts. But that feeling of jubilation evaporated when that invoice went unpaid from one month to the next and we needed to stop generating new business because it was unclear whether it would be compensated.
We had two choices: negotiate down the revenue we earned to encourage repayment or pursue legal action. Our partners knew that the latter was a protracted and incredibly expensive process, and so did we.
Advisers recommended we look into small claims court, but the ceiling on small claims in Ontario is $25,000, far below what we were owed and lower than what we would accept in negotiation.
Outside of business, not paying your cellphone bill, credit-card statement, mortgage or other liabilities has immediate repercussions. Your credit score will be affected; your plan, discontinued. You may even lose your house. Future lenders will be reluctant to help you because they will see you have a troubled history of repayment. Why have we not applied this same principle of accountability to businesses?
From talking with other entrepreneurs, I have learned that this issue is commonplace across various industries, especially in the early stages of a business. An industrial electrician told me he had to close his business down with $250,000 in outstanding invoices because he couldn't afford to keep the lights on any longer.
I felt frustration like never before. We had staff to support, bills to pay, lights of our own to keep on. My company had delivered on sales and adhered to our agreement, but we were not being paid what we were owed. Where was the accountability?
It's not just a matter of fairness – it is paramount to Canada fostering an innovation economy. Startups cannot grow and scale if they cannot rely on their sources of revenue and budget accordingly. In our case we had to put numerous aspects of our business on hold until we were able to reconfigure our cash flow.
The good news is that a precedent for holding businesses to account exists in Canada – a credit bureau businesses can reference before entering into any new agreements, and to which they can report the delinquencies of their partners. Businesses have unique identifying numbers, so we are already on our way toward feasibility. This mechanism doesn't yet exist, but I'm confident our government can establish one for our burgeoning startup economy.
My business continues to operate. We made it, but others haven't been so lucky. How can our thought economy and its startups continue to innovate and grow if businesses can't be held accountable? As the Canadian economy evolves, it's a question that more and more people will ask.