When you invest a significant amount of time, resources and manpower into a construction project, you not only expect the client to pay you but also, you need him or her to. Without payment, you may face insolvency, especially if you operate a small business.
Like many small business owners who are in similar situations, your first instinct may be to sue the default client for payment. While you have every right to do so, know that legal action is not always the best or most cost-effective option. Moreover, the law requires you to take very specific steps before you can sue evading customers. FreshBooks explains the steps you must take to sue for nonpayment of services.
Give the customer multiple opportunities to make matters right
Before you resort to legal action, give the customer multiple opportunities to pay you for your services. Send multiple invoices and follow-up reminders. Attempt to contact him or her by email, phone and text. If you suspect affordability is an issue, offer the customer the chance to repay you on an installment basis. If, despite your efforts, the customer refuses to pay or even communicate with you, then seek legal recourse.
Send a final demand for payment
Once you decide to take legal action, send a final demand for payment. Though not always necessary, it is a good idea if you hope to strengthen your case. This is because, in the face of legal action, many individuals will finally either pay their overdue bills or attempt to work out a payment arrangement. If the demand does not motivate the customer to pay, it will, at the very least, demonstrate that you did what you could to seek payment before involving the courts.
Determine how much the client owes you
Lawsuits can quickly become costly. For this reason, you should assess how much the client owes you and be honest with yourself about whether pursuing legal action is worth it. In addition to considering the amount of the final bill, also calculate the amount of time and money you spent submitting the invoices, attempting to contact the client and pursuing legal action. Additionally, assess the financial health of the client. If you win the lawsuit, will he or she have the funds to pay the settlement or award?
Consider small claims court
If you decide to pursue legal action after all considerations, consider going through small claims court. Small claims court is the least expensive and time-consuming route for legal action, as its purpose is to help parties resolve disputes quickly. Note, though, that to have a case in small claims court, you can only sue for up to $10,000 as an individual and up to $5,000 as a business.
Pursuing nonpayment can be a stressful and lengthy process. To speed up your financially recover, consult with a professional as soon as you suspect nonpayment is an issue.