There are many variables in this situation, perhaps the biggest being the amount of the bill and your customer’s ability to pay. Suing a customer won’t help your relationship, but getting paid might be the most essential part of it. Here are some issues to think about if you’re in this situation as shared by a corporate litigation lawyer.
Set Expectations At The Beginning
Discuss the costs, fees, billing procedures, and when payments are due dates before the relationship begins. Ensure there are no misunderstandings, and the customer understands their obligation to pay you.
Payment Schedule
When is payment due? A set period after the work is done? A given number of days after an invoice? Do you offer a monthly payment plan? If the customer is new, you may want to ask for a partial payment upfront as our friends at Focus Law LA would advise.
Ignoring The Problem Won’t Make It Go Away
Send your invoices promptly and state payment due dates. Late fees may encourage prompt payment. If this becomes a persistent problem, take action.
What Should You Do?
What’s your tolerance for non-payment? If you’re starting, you may be more tolerant if the customer gives you good references, which leads to other business. Personal dynamics occur if the customer is a friend or family member. If you’re established and have resources, you may not be tolerant at all. You’re not a charity. You’re a business, you have bills, and you must be paid.
Communicate with your customer. Find out why you’re not being paid. Are they honestly short of cash or disorganized? If it’s practical, make accommodations for a partial, periodic payment. If this is a repeated problem and you’re getting conflicting or not credible excuses, you must step up your game.
You can send a written reminder or a sterner debt collection letter spelling out the following:
- The facts
- When bills were sent
- The responses you’ve received
- A definitive date you must be paid
- A warning that failing to meet it will result in it going to collections or legal action
Talking to the customer in person may be worth a try. You may be able to negotiate a payment plan or a lower amount you’re willing to accept. Meeting in person may allow you to better understand what’s going on. You may see a business in disarray, flustered management trying to hold things together, or a company doing well but refusing to pay you rightly or wrongly.
If all else fails, there’s a final demand letter with a set payment date. You’ll need to decide what to do if you’re not paid. You can give up, sell the debt at a deep discount to a collections agency, or start a legal action to collect what’s owed.
Legal Action
Depending on what’s at stake, you may or may not want legal representation. You may pursue this through small claims court if the amount is small enough. They may prohibit using attorneys (though you could get their advice beforehand), but you may need one if a corporation owns your business.
Legal representation may be worth the investment if it’s a larger amount. As the plaintiff, you have the burden of proving you provided the products or services, the two of you agreed on payment terms, the customer breached the agreement, and they owe you money.
The customer may contact you to settle the case before litigation starts. You may be one of many parties to whom the customer owes money, and you may never hear from them again. If they don’t attend any proceedings, the judge may default them. This means you won your case without a trial, so you’ll have to collect the judgment. You may go to trial if the customer participates in the legal process, and you may or may not be successful.
The customer may seek bankruptcy protection. If so, you must line up with all their other creditors. You may get little or nothing if there’s no collateral to your debt. Your customer may skip bankruptcy and stop functioning, and you’ll need to chase after whatever assets they may have.
Often the time and effort of trying to collect money from a person or business without assets isn’t worth it. You could end up chasing financial and legal ghosts and shadows with nothing to show for it. You may be able to write this off as a bad debt and it’ll be a loss on your tax return, reducing your tax obligations.
Talk with an attorney who is experienced with debt collection cases and small businesses. They may be able to give you legal and practical advice on handling the situation.