In difficult economic
times, small business owners need to get paid for the work they perform
to maintain cash flow, pay bills and earn enough to live. Of course,
prior to seeking assistance from legal counsel, you will have tried to
work an arrangement out with your customer, but to no avail.
A. Some Reasons Why Customer Will Not Pay
The customer usually provides one of the following reasons for not paying your bill:
(a) the service or product delivered was defective in a specific way;
(b) the service or product did not meet the customer's satisfaction
in general terms (for example, "When I got it, I didn't like it."; "The
product didn't meet my specifications.");
(c) the bill is an overcharge (for example, "I thought the estimate
was a flat fee for services, not hourly."; "I know you didn't spend
that much time on that line item"; or "You had to come out a second
time to redo the work. Why should I pay for the first trip?" etc.)
(d) the customer tries to renegotiate the deal after-the-fact (for
example, "I found it for a lower price; will you match the other price?"
B. Setting Yourself Up for Success in a Billing Disputes
Here are the top ways to protect yourself and give yourself the best chance for succeeding in the event of a billing dispute.
1. Have good forms and agreements. (For example, when utilizing a
form that provides an estimate for hourly services to be performed,
make sure that the word "Estimate" or "Estimated" describes all dollar
amounts on the form. Ensure you have solid "Terms & Conditions"
that specifically provides that customer complaints must be received in
a certain amount of time or they are waived, and specify the time limit
for payment. Spend a little extra time to make sure the order form or
agreement is very specific as to what goods are being ordered or what
services are to be provided. Have liquidated damages clauses for
breach, if the amount you may be injured from a failure to pay is
2. Keep a copy of the first check received by the Customer. In an
Ongoing Business Relationship, make a photocopy of the first check you
receive, so you have the Customer's checking account information. If
you ever need to collect a judgment from small claims court, the
Sheriff can seize the funds using the Customer's checking account
information. (For credit cards, If a customer pays by credit card, you
can use the disputed charge system through the credit card company.)
3. Report Fraudulent Checks to the Police. If you receive a check
from a Customer that is returned for insufficient funds, make sure you
call the Customer, see if there is a good reason why there are
insufficient funds, and state that drawing a check from a bank account
with insufficient funds its illegal. (Note: attorneys are prohibited
from threatening criminal prosecution to gain any kind of advantage in
a civil dispute, but business owners, who are not lawyers, have no such
prohibition.) A police report for check fraud is a powerful incentive
to encourage payment.
4. Enforce Your Rights. A business may bring suit against a customer
in small claims court for an amount of $5,000 or less. An individual
may bring a suit against a customer in small claims court for an amount
of $7,500.00 or less.
If you win, in order to collect a judgment in your favor from small
claims court, you will need to get a Notice of Entry of Judgment
(issued from the Clerk of the Small Claims Court), Writ of Execution,
Notice of Levy, Memorandum of Costs, and then contact the Santa Clara
County Sheriffs office to collect the judgment debt at (408) 808-4800.
Claims involving $25,000 or less are in Superior Court Limited Jurisdiction.
Claims involving $25,001 or more are in Superior court Unlimited Jurisdiction.
5. Consult with Your Attorney. When telephone calls and
conversations with the customer fail, consult with your attorney about
the issue. A strongly worded letter sometimes pushes a customer to pay.
If the customer has his/her/its own attorney, consult an attorney to
see what your rights are and whether the customer's arguments have any
merit whatsoever. If your customer has an attorney, the attorney will
try to bully you. However, your customer's attorney should not be able
to bully your attorney. Just make sure you get a good one.
Whether or not to collect a debt is always a business decision that includes:
1. Is it too expensive to go after so little money (business
write-off)? (Don't forget the principal of lost opportunity costs –
every minute spent chasing overdue invoices, could be spent earning new
income. However, when the list of accounts with outstanding balances is
just too high, you need the revenue to stay in business.)
2. What is the harm to my reputation, if I attempt to collect from
the Customer? (Am I prepared to have the customer trash my business'
reputation? Do I have enough positive feedback to fight negative feed
While building a business from the ground up is personal. The conduct
of business is always business. Having a good business attorney is
similar to having a good accountant, a good business attorney will try
to prevent problems before they begin, and when problems find you he or
she will get you out of it.
*PRODIGY LAW ARTICLES ARE CREATED BY DENNIS W. CHIU ARE FOR INFORMATIONAL AND EDUCATIONAL PURPOSES
ONLY. ANY SUGGESTIONS CONTAINED IN THE ARTICLES IS ONLY THE GENERAL
OPINION OF DENNIS W. CHIU. PRODIGY LAW ARTICLES ARE NOT WRITTEN WITH
ANY SPECIFIC FACT PATTERN OR CASE IN MIND. THEY DO NOT REPLACE
ORIGINAL LEGAL RESEARCH AND CONSULTATION WITH AN ATTORNEY REGARDING
YOUR SPECIFIC MATTER OR CASE. PRODIGY LAW ARTICLES ARE PRESENTED "AS-IS", AND DO
NOT GUARANTEE THE ACCURACY OF THE INFORMATION CONTAINED THEREIN, SINCE
CASE LAW AND LAW CAN CHANGE RAPIDLY.