Getting Your Business Paid*

by
Dennis W. Chiu, Esq.
Founder
PRODIGY
LAW

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 sufficiently uncertain.)

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.

Conclusion

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 back?)
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.