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Customer Refuses to Pay Contractor: A Step by Step Guide

Camila Lopez - Unpaid Invoices - November 29, 2023

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Contents

    As a contractor, you spent countless hours working on a client’s project but now the client refuses to pay. Now what?

    In this guide, we go over what to do when a customer refuses to pay a contractor. By contractor, you can be a web designer to a construction worker. 

    Here are the steps we will go over: 

    1. Informal Communication. Reach out to the client by phone or email and understand why they are refusing to pay. 

    2. Demand Letter. Send a strongly worded demand letter. 

    3. Small Claims Court. Escalate to small claims court. 

    Did you know that we have a free tool powered by AI that helps you create a demand letter to a customer who refuses to pay you? Check out our demand letter tool. 

    Step 1- Informal Communication

    The first step is to reach out informally, by phone or email, if it isn’t yet clear to you why the customer is refusing to pay. Many payment disputes stem from miscommunications and can be resolved by understanding what is happening. 

    Strategy: 

    • Soft Language. When you call, it is important you use soft language and an honest tone of voice that conveys that you are trying to understand what is going on on their end. It isn’t time to escalate yet as resolving the dispute in a friendly manner is a lot faster and cheaper than the alternatives. Here is an example: “I am calling to follow up on the invoice I sent at the beginning of the month. I have not yet received payment and I wanted to understand a bit more about what was going on your side of things.” Your goal is to gain a clear understanding of why the customer has not paid. 

    • Offer a Discount. If you have any doubts about whether you may be in the wrong (quality of work, deviation from contract terms, etc.), consider providing the customer a discount in exchange for immediate payment. 

    • Consider the Alternative. Once it becomes very clear to you why the customer is refusing to pay and you know you are in the right, it is time to escalate. 

    Step 2- Write a Strongly Worded Demand Letter

    A demand letter is a formal letter to a customer that refuses to pay. 

    A demand letter outlines:

    1. how much you are owed, 

    2. what you and the customer agreed to,

    3. facts that state that you completed the work per the agreement, 

    4. when you expect to receive payment, and 

    5. clear language of the next steps you intend to take if they don’t pay you. 

    Writing a strongly worded demand letter is an effective method for contractors to receive the money they are owed. Why? It conveys that you are serious about the problem. When you write a letter and send it by mail, the customer knows you are taking the first steps in considering further legal action. 

    If your customer fails to respond to your first demand letter, consider sending a follow-up demand letter as a final warning. 

    Did you know that we have a free tool powered by AI that helps you create a demand letter to a customer who refuses to pay you? Check out our demand letter tool. 

    Here is how our demand letter tool works:

    Sample Demand Letter

    Below we have provided a sample demand letter for contractors with customers refusing to pay outstanding invoices: 

    [Date] 

    [Client Name] 

    [Client Address] 

    Re: Demand for Payment - Invoice [Invoice Number] 

    Dear [Client Name],

    This letter is a formal demand for payment of [Amount Owed] for the following services provided: [List of Services Contractor Provided]. 

    The invoice was sent on [Date Invoice was Sent] and is now [Number of Days Past Due] days past due, with an outstanding balance of [Amount Owed]. 

    Previous email reminders have been unsuccessful in securing payment or communication from you regarding this invoice. We have fulfilled our obligations under the agreement, therefore, we request that you make the full payment of [Amount Owed] by [provide a date 14 days in the future]. 

    Failure to make the full payment within [provide a date 14 days in the future] will force us to consider legal action to collect the outstanding amount. Nevertheless, we hope that this matter can be resolved amicably and quickly. 

    Please contact us at [Email Address] if you have any questions or if you would like to discuss payment arrangements. 

    Sincerely, 

    [Your Signature]

    Step 3- Sue Your Customer in Small Claims Court 

    For clients who continue to refuse to pay for work done despite email reminders and strongly worded demand letters, contractors should consider pursuing legal action through small claims court. Suing for unpaid invoices is one of the most common types of disputes we see. 

    Small claims courts offer an affordable and efficient way to resolve unpaid invoices. The maximum you can sue for in most states ranges between $2,500 and $25,000 (review our guide to small claims limits in all 50 states).

    Here are some quick facts about small claims court:

    • In some states, like California, you can’t have a lawyer represent you. This is meant to keep the process affordable.

    • Filing fees range between $0 - $150 in most states.

    • You will also need to pay to let your customer know about the lawsuit. This is called serving. Fees for this can range between $0- $125. 

    Preparing for the small claims hearing: 

    When a customer refuses to pay you, a contractor, you are likely suing over a breach of contract. 

    Here is what you need to prove at the hearing.

    1. You entered into a contract. To enter into a contract you don’t always need a piece of paper that states the word “contract” on the top and is signed by both parties. In general, a contract can be any written or verbal agreement. For example, invoices, emails, etc. As you grow your business, you will find that the more organized and clear you are with your contracts the better. 

    2. You performed under the contract. This means that you did what was required of you. For example, if you were hired to design a website, you will need to prove that you designed the website. As evidence you can include pictures of the website before and after you completed the work. 

    3. The customer didn’t perform under the contract. This means that the customer didn’t pay you. 

    Prepare your evidence by organizing all relevant documents and categorizing them by titles or dates; this will help you build your case for the judge. All your evidence should be aimed at showing the judge how much you are owed and why. 

    Continue learning about small claims court in our 50-State Guide to Small Claims Court.

    Did you know that we have a free tool powered by AI that helps you create a demand letter to a customer who refuses to pay you? Check out our demand letter tool.

    Author

    Camila Lopez

    Chief Legal Architect & Co-Founder @ People Clerk. Camila holds a law degree and is a certified mediator. Her passion is breaking down complicated legal processes so that people without an attorney can get justice.

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