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Non-paying clients are an irritating scenario that most businesses find themselves facing sooner or later. Initially, you just assume the client hasn’t read the invoice yet. Then you consider that it may have slipped their mind. So you send reminders that are followed by either a vague reply or no response at all. So you start getting nervous and begin to consider the possibility that the customer is incapable or unwilling to make the payment.
Let’s explore how these situations can negatively affect your business and what legal actions you can take to resolve the issue.
What Non-Payment of Services really cost?
When customers miss payments, your finances are impacted on multiple levels. First of all, providing services involves costs. Let’s say you are a dentist running a private practice. Every month you incur numerous expenses, such as medical equipment, office supplies, and maintenance, as well as the salary you pay to your anesthesiologist and receptionist or the monthly fees charged by your accountant.
The revenues you earn from each client help you cover these costs and generate a profit. When one client doesn’t pay, the costs you incurred to serve that client don’t magically disappear. Such a scenario is particularly worrisome when multiple clients don’t pay or when the services you provide are very expensive. In some cases, you also risk not being able to pay your suppliers and employees, which in turn can exacerbate relations with them.
Is your client really trying to avoid the payment?
Before legally suing, you must take all the steps to make sure that your client is indeed trying to avoid paying the bill, either because he can’t or because he won’t. Ask yourself the following questions before taking any legal action.
- Did you send the invoice to the right person? When your client is a medium-sized or large company, there is a chance you made a mistake and sent the invoice to somebody who is not in charge of paying suppliers.
- Did you send the invoice through the right channel? Your customer may have told you earlier that he wanted you to sell invoices by email, but you forgot and sent one by post.
- Did you clearly define the scope of work, and did you provide the agreed service in its entirety? Maybe, there was an earlier misunderstanding, and your client is waiting for additional work on your part before considering your services delivered.
Read More: Contract Redlining: What, why, when, how?
Sending Gentle Reminders and Considering the Cost of Legally Suing
Once you determine that you delivered the full service and followed all the necessary bureaucratic procedures, you should consider sending 2 or 3 gentle reminders before taking legal action. Not all clients that don’t pay immediately are malicious or broke. Some may have genuinely forgotten to pay. Others may have sent a bank transfer to the wrong bank account and are waiting for the bank to send the money back before processing the money back.
Sending a few polite messages and reminding your clients of the payment can help you assess their intentions.
Now, let’s assume your client is still unresponsive or vague after receiving these light reminders. Here is the last you should ask yourself before suing: is the cost of non-paid services higher than the cost of taking legal action?
Unfortunately, filing a lawsuit involves various expenses. While it’s true that the losing party of a case usually has to cover these costs, there is no guarantee you will win it, and there is always a small risk you may lose and be forced to pay your client’s defense costs.
You should keep your emotions out when doing this assessment should be done without emotions. As angry as you may be at your client, your primary responsibility is to do what’s best for your business, and sometimes the best financial decision is to let go.
This also applies to more mundane situations. Let’s say your landlord agreed verbally to pay for monthly cleaning services before you moved in. A month after, they act as if the agreement never happened. You may consider suing your landlord, but make sure you have some convincing proof that such verbal agreement happened, or you may very well end up paying for both a new fridge and a high legal bill.
Time to Legally Sue: Here Are The Main Steps to Take
There are many cases in which legal suing is the right thing to do. In these scenarios, the financial damage may be too high, and you find yourself forced to do everything you can to get that money. Here is a step-by-step guide.
- Send your clients an official final letter demanding they pay for the services rendered. Highlight how your client is in default, how much is owed, and the date before which the payment must be executed.
- Determine the amount of the damages you received by the non-payment of services.
- File a complaint in the court that has jurisdiction over the matter.
- Use the discovery process to gain knowledge on what assets the other party has for seizure.
- Seek relief. One way to do this is by applying for a writ of attachment and asking the court to play a lien on the other party’s assets.
- Obtain a judgment. Depending on the situation, this can be a default judgment, a summary judgment, or an after-trial judgment.
It’s always advisable to hire a reliable lawyer to assist you with the proceedings. When filing a lawsuit, there are countless factors to take into account, and it’s close to impossible to keep track of all of them without a legal expert on your side. Moreover, the procedure you may need to follow to sue a client for non-payment of services may change from state to state, and an experienced lawyer will know how to handle things in your specific area.
