In today's Freedom Friday blog and email newsletter, I want to talk about a common topic, which I get asked about very frequently by both clients and prospective clients, and that's how can my small business deal with non-paying customers?  Sometimes invoices are past due 30 days, 60 days, or even 90 days, and they've not been paid.  Perhaps you've sent multiple invoices, followed up by both phone and email, and you're still not paid.  You do have the option to sue for non-payment, but sometimes that needs to be a last resort option.  You should at least consult with an attorney first and take some intermediate steps before filing a lawsuit for non-payment.  Suing for non-payment can be time-consuming and expensive.  At Liberty Legal Solutions, LLC, I do represent small business owners for non-payment issues, but it's hourly work, and not contingency.  There is no guarantee of recovery.  In today's Freedom Friday blog, I'm answering the question, “How can a small business resolve non-payment issues?”

First of all, you should consult a lawyer before you file any kind of lawsuit.  You and your attorney need to come up with a strategy to resolve your non-payment issues.  Here are three (3) steps which you should take and discuss with your attorney:

1.  Send a Final Invoice

The first step you should take, especially before filing a lawsuit to resolve a non-payment issue is to send a final invoice to your customer.  The invoice should be sent with a demand letter, either one from your business or from your attorney, and it should include the fact that the client has defaulted on the invoice or breached the contract, the total amount owed, including any late fees, ask for payment in full by a certain date, and tell the client you intend to pursue legal action if the invoice is not paid by the deadline.

2.  Decide if a Lawsuit is Worth It

The second step you should take, especially before filing a lawsuit to resolve a non-payment issue is to decide if a lawsuit is worth it.  If you don't receive payment after sending the final invoice and demand letter, then you need to make a business decision and figure out if it's worth the time and expense to sue your customer for non-payment.  You need to consider the total amount owed, and also the financial state of your customer, because there is no guarantee of recovery, and if the customer decides to file bankruptcy or have the finances to pay you back, it may not be worth a lawsuit, or you may want to consider selling the debt to a collection agency instead of a lawsuit.

3.  Consider Small Claims or a Civil Lawsuit

The third step you should take, especially before filing a lawsuit to resolve a non-payment issue, is to consider small claims court or a civil lawsuit.  If you and your attorney decide to file a lawsuit, you need to decide if you will file the lawsuit in small claims court, or to file a civil lawsuit in district court.  In Oklahoma, there are two different levels of small claims lawsuits, and the maximum amount you can file for is $10,000.00.  You do not need to have a lawyer represent you in small claims, but if there are complicated issues, you should have an attorney representing your business.  Small claims is the least expensive option, but even if the debt is for a moderate amount of money (between $5,000.00 and $10,000.00), it may be easier (although somewhat more expensive) to file a civil lawsuit in district court.  A civil lawsuit may be more time-consuming and/or expensive at first, but if you get a default judgment, you won't have to physically go to court like you would in small claims.  You also MUST be represented by a lawyer in order to file a civil lawsuit in district court.  Lastly, the most common question I get is who pays for attorney fees and costs.  If you or your attorney file the lawsuit yourself, then you are responsible for the filing fees and whatever attorney fees your attorney may charge you.  However, if you get a judgment against your customer, the judgment will usually include attorney fees and costs, which you will need to collect from your customer, along with the amount owed, in post-judgment proceedings such as garnishments, and of course, there's still no guarantee of recovery, especially with default judgments.

Thinking about starting a small business?  Or maybe your small business is having issues with contracts, leases, business partners, collection issues, or experiencing other barriers to growth?  Please contact me at [email protected] to schedule a FREE strategy session.

For more information about Liberty Legal Solutions, LLC, please visit our website at http://www.libertylegalok.com/