Successfully contracting and selling goods in Canada requires a blend of careful planning, due diligence, and strong legal documentation. Whether you're entering a new market or managing ongoing relationships, these best practices will help minimize risks and maximize the chances of success.

Pre-contractual due diligence

Before entering into a contract with a Canadian buyer, take steps to verify and protect your business interests:

  • Background checks:  Conduct credit checks, call references, or use other methods to assess prospective buyers. If in doubt, avoid extending credit.
  • Credit application:  Require a formal application for credit requesting appropriate information.
  • Secure collateral or guarantees: Request security or a personal guarantee to ensure accountability if the buyer defaults.
  • Verify buyer information: Review the buyer’s website, confirm their phone number is registered in Canada, and ensure the shipping address matches their location. Be cautious of generic email domains like Gmail or Yahoo, and double-check their legitimacy.

Creating effective contracts

A well-written contract promotes clarity and certainty, ensuring all parties and future personnel understand the agreed terms. It expresses the entire agreement, superseding prior understandings, and reduces the likelihood of disputes while increasing the chances of resolving any that arise. Here are some best practices to follow when creating a contract.

1. Written contracts are essential:

While contracts for the sale of goods in Canada can be oral, written, or implied, a written agreement with clear and specific terms is always the best practice.

2. Key clauses to include:

  • Entire agreement clause: Limits reliance on prior statements outside the contract.
  • Limitation of liability: Caps liability and excludes indirect or consequential damages.
  • Arbitration clause: Offers a streamlined alternative to lengthy court proceedings.
  • Choice of jurisdiction and law: Specifies where disputes will be resolved and which laws apply.
  • Force majeure clause: Protects against liabilities caused by extraordinary events, such as natural disasters.

3. Using digital contracts and electronic signatures:

  • Electronic signatures—whether typed names, digitized signatures, or secure codes—are widely accepted, provided they are linked to valid electronic documents. However, certain documents, such as wills and negotiable instruments, are excluded under the Electronic Commerce Act.

Essential legal need-to-knows for contracting and selling in Canada

Successfully contracting and selling goods in Canada requires attention to key business and legal aspects to reduce risks and ensure success. Here are two critical areas to focus on:

Liability and warranties

Protecting your business requires a clear understanding of liability and warranty obligations:

  • Contract liability arises from failing to meet agreed terms, such as late deliveries, defective products, or unmet specifications.
  • Tort liability involves negligence, such as poor manufacturing practices causing harm.
  • Warranties are promises about the quality of goods sold. Implied warranties under the Sale of Goods Act include:
    • Merchantable quality: Goods must be fit for ordinary use.
    • Fitness for a particular purpose: Goods must meet specific buyer needs if the seller is aware of them.
    • Sale by description: Goods must match their description.

Tip: Clearly outline warranty obligations in contracts to avoid reliance on implied warranties and prevent unexpected liabilities.

Managing receivables effectively

Ensuring payment is collected is critical to completing a sale and maintaining strong cash flow. To minimize risks:

  • Bill promptly and set clear payment terms.
  • Offer discounts for early payments or charge late fees for delays.
  • Follow up immediately on overdue accounts, documenting all efforts.
  • Obtain written acknowledgments of debts to strengthen enforceability.

Tip: Persistence and clear documentation are crucial for successful debt recovery.

When things go wrong: Litigation as a tool for dispute resolution and collections

Litigation is a formal legal process used to resolve disputes, including debt collection. A civil claim seeks to remedy an injury, loss, or damage caused by an act or omission. You generally have two years to start legal action for unpaid debts in Ontario.

Canadian court options


The court that handles a claim depends on the monetary amount involved:

  • $35,000 or less: Small Claims Court
  • $35,001 to $200,000: Superior Court under Simplified Procedure
  • Above $200,000: Superior Court under standard rules

Steps in the litigation process:


Before pursuing litigation, it is essential to send a demand letter and investigate the merits of the claim, including whether the debtor has a valid counterclaim, whether your case has merit, and whether the debtor owns assets that could satisfy a judgment.

If litigation proceeds, these are the typical steps:

  1. Pleadings: The plaintiff files a statement of claim, and the defendant responds with a statement of defence.
  2. Mandatory mediation: In jurisdictions like Toronto, Ottawa, and Windsor, mediation may be required to encourage early settlements.
  3. Discovery: Both parties exchange evidence and relevant documents through affidavits and discovery plans.
  4. Pre-trial conference: A judge helps narrow issues, explore settlements, and prepare for trial.
  5. Trial: Parties present evidence through witnesses and exhibits. The judge may issue a decision immediately or reserve judgment.
  6. Enforcement: If the judgment is unpaid, creditors can pursue garnishments or the seizure and sale of assets to recover funds.

Need help?

Contracting and selling goods in Canada requires careful planning, strong contracts, and effective financial and legal management. Contact our team for assistance with contract drafting, dispute resolution, or debt collection strategies.