Are you a business owner that is having trouble getting your clients to pay outstanding invoices? You trusted your clients would pay you especially after putting so much time and effort on the work you did for them.
In this article, learn about:
- How to communicate with your clients so that they pay their outstanding invoices.
- How to send a someone to collections.
- Consider suing your client in small claims court.
- What to do before suing a client in small claims court.
- How to write a demand letter to a client.
- How much does it cost to sue a client in small claims court.
- How to sue a client in California small claims court.
How to communicate with your clients so that they pay outstanding invoices
The first step in working with a client that won't pay an outstanding invoice is to communicate with your client by calling or emailing them. You may also want to mail the the unpaid invoice again. Remind them that as a small business owner, you depend on them paying you so that you can stay in business. Refrain from using anger as a way to get paid back but rather get your client to empathize with you.
Here are some examples of what you can say to your clients with outstanding invoices:
- "I completed the roofing job on your house a few months ago and I was wondering when you were able to pay me. I am a small business owner and I really depend on my client's paying me, otherwise, I will have to close my business."
- "I completed the website design services over 3 weeks ago but I have not received payment from you. Were you thinking of paying the outstanding invoices soon? I am a small business owner and I really need to get paid to be able to stay in business."
- "I completed painting your house over a week ago but still haven't been paid. I was wondering when you would be able to pay me as I had to take out a loan to be able to pay my workers on time."
If your clients with outstanding invoices are able to empathize with you, they will understand why you need to get paid back quickly.
Consider sending your client to collections
Have you lost all contact with client that hasn't paid their invoices? It may be time to escalate the situation to get paid back from a client.
- What is a collections agency? A collections agency is a business that will call and send mail to a client that hasn't paid you back.
- How much do collections agencies cost? Some collections agencies charge a set fee or a percentage if they are able to recover your unpaid invoices.
- How long do I have to send a client to collections? If you have lost all hope that your client will pay you, you can consider sending them to collections right away.
- What to keep in mind when sending a client to a collections agency. (1) You will get less than what you are owed because the collections agency has to charge you either a percentage of what they are able to collect or a set fee. (2) In general, there is a deadline to collect on unpaid invoices from a client- this deadline is called the statute of limitations and it varies by state. In California for example, you have 4 years to collect on an unpaid invoice if your contract with your client was in writing and 2 years to collect an unpaid invoice if your contract was not in writing.
Consider suing your client in small claims court
We often get the question, can I sue a client in California small claims court for an unpaid invoice? The answer is yes, you can sue your client in small claims court for an unpaid invoice as long as you sue for the small claims limit or less.
How much can I sue a client for in California small claims?
- If you are doing business as a sole proprietor, the maximum you can sue on an unpaid invoice is $10,000 or less.
- If you are doing business as a corporation or LLC, the maximum you can sue on an unpaid invoice is $5,000 or less.
- If someone owes you more than the small claims limit, then what? If you are owed more than the small claims limit, you can still sue in small claims, but you have to waive any additional amount you are owed. Here is an example: You are owed $11,000 for work you completed at someones house. You would like to sue in small claims but the limit is $10,000. You agree to sue them for $10,000.
Why would someone agree to waive any amount over the small claims limit?
- Suing in regular court is more expensive, time-consuming, and complicated.
- You cannot hire an attorney to represent you in small claims court making it cheaper.
- Hearings in small claims court are scheduled 30-75 days after the lawsuit is filed.
How long do I have to sue my client in small claims court for an unpaid invoice?
Remember, In general, there is a deadline to collect on unpaid invoices from a client- called the statute of limitations. It varies by state. In California for example, you have 4 years to collect on an unpaid invoice if your contract with your client was in writing. If your contract with your client was verbal, you have 2 years.
What happens if I win in small claims and my client still does not pay me?
Once you win in California small claims, the court's decision stating that you won (this is called a judgment) is valid for 10 years and renewable for another 10. This means you have 10 years to collect from a client.
A judgment also means you have additional tools to collect from a client that hasn't paid. Here are additional tools that a small claims judgment gives you to collect:
- You can garnish your client's wages which means that you can ask your client's employer to pay a portion of their wages to you until the debt is paid off.
- You can levy a client's bank account which means you can have someone's bank send you the money that is owed to you.
What to do before suing a client who owes you money in small claims court
Save All Evidence
You want to make sure to save all evidence related to the work you did for the client and all the times you asked them to pay you:
- Invoices you have sent your client.
- The agreement between you and your client for the work you did if it was in writing.
- Any text messages, emails, or phone call logs between you and your client.
- Any proof you have of how much they owe you, when they were supposed to pay you, and any partial payments you clients have made.
Send a Demand Letter
A demand letter is a letter that outlines a set of requests. For example, you could write to your client asking that they pay any outstanding invoices.
If you eventually decide to sue in California small claims court, you are required to firstbefore you can file the lawsuit. While you can request your money or property back orally, it is suggested you do so in writing in the form of a demand letter.
Sometimes a formal demand letter can get your client to repay you for work you have completed as they know you are serious about getting them to pay you back.
Unsure of what to include in your demand letter to a client? Here are a few suggestions:
- How much money you are owed.
- A summary of the work you completed or what you sold them.
- Your contact information.
- Where to send payment.
- Option to pay using a payment plan.
- Option to mediate.
- Give them a few days to respond (usually about 7 to 14 days).
- Let them know that if they don't respond, you intend to sue as they have left you no alternative.
Offering a payment plan
In the demand letter, you can consider offering your client a payment plan if you think this would be helpful to them. If your client owes you $1,000, and you told them to pay you the $1,000 back once they had the money it may be hard for them to come up with the $1,000 all at once. Let your client know that they can pay you back $50 per week until the full $1,000 is paid for.
It is much easier for someone to pay in installments than a lump sum payment. It is also a good idea to ask them how much money they feel comfortable paying and when. If they say, I can pay you $100 every 15th of the month, then it was their idea how much they could pay you and when. It is easier to get "buy-in" from someone when it is their idea.
How much does it cost to sue a client in small claims for an unpaid invoice?
- It costs between $30-$75 to file a small claims lawsuit.
- Once the lawsuit is filed, your client to be notified that a lawsuit has been filed against them. This is called serving. You can serve for free if you have a friend or family member deliver the lawsuit to the person you have sued or you can pay between $40-$75 to have the lawsuit professionally served.
How to sue a client in California small claims court
Step 1: Complete "Plaintiff's Claim and Order to Go to Small Claims Court" (Form SC-100)
- This form starts the California Small Claims Court lawsuit process.
- It is also known as the "complaint" or "claim."
- This is the first document you need to file if you are suing someone.
- FYI We can help you prepare and file your small claims lawsuit!
What information to you need to be able to sue a client in small claims court?
- Make sure you have an address for your client as this is where they are going to be "served" (see step 3).
- If you don't have an address for your client, spend some time trying to find their address before filing your small claims lawsuit. You can run a phone number search on google, ask them for their address, or hire a skip tracer.
Step 2: File "Plaintiff's Claim and Order to Go to Small Claims Court"
Each California Small Claims Court has a different procedure for filing. You have to check with your local small claims court whether they allow filing in-person, by mail, online, or by fax. Or we can file your case for you!
Step 3: Serve your client with the small claims lawsuit
Once you file your California small claims court lawsuit, the next step is to notify the person you sued that they have been sued. This is called "service of process" (also known as "service"). You must serve your client at least 15-20 days before the small claims court hearing (sometimes you are required to serve at least 30 days before the hearing). There are several ways you can serve your client including by having a friend serve, hiring a process server, hiring the sheriff, or through the court clerk. We can help you with serving the small claims lawsuit. You can also serve the your client at work.
The Small Claims Court Hearing
Once you file your case, you will get a hearing date scheduled anywhere between 30-70 days later. During this time, your client may call you and ask to repay you. If they repay you before the hearing date (or even on the hearing date), you can close the lawsuit.
To prepare for your small claims court hearing:
- Prepare your evidence. You want to have your evidence organized with titles, dates, and why that piece of evidence is important. All your evidence should be geared towards showing the judge how much you are owed, when they were supposed to pay, any money your client has already paid you back. Make sure to include any contracts or invoices for the work you did for your client.
- Prepare what to say. During the hearing, the judge will ask you why you are suing. For example, "Your Honor, I am suing John because I provided website design services and he didn't pay me. I completed all the work by the deadline we agreed on and he approved all the work I did. They were supposed to pay me on March 1, 2021, and I still have not heard back from them. You can see our text messages on page 4 of my evidence that I have tried to request the money back, but they still have not paid me."
- Get your receipts for costs ready. For example, your filing fees and any process server costs. Make sure to let the judge know that you would like to be reimbursed for these costs.
- Print enough copies of all your evidence. You will need at least three copies (one for you, one for the judge, one for the person you are suing).
Are attorneys allowed in small claims court?
- Attorneys are not allowed to represent you or the person you sued at the initial hearing. If the person you sued appeals (meaning they lost and want the judge to decide again) then attorneys are allowed to represent the parties at the appeal hearing.
Think about going to mediation with a client
What is mediation?
Mediation is a meeting between you, your client that owes you money, and a neutral 3rd party called the mediator. A mediator is not going to force you and your client to come to an agreement and is not going to determine who is right and who is wrong (that is what judges do). A mediator is going to help you and your client come to an agreement together on how to resolve your client not paying you for the work you have completed. They are going to help you talk to each other without interruptions.
Benefits of mediation:
- The mediator will help you brainstorm solutions on how to get paid from your client.
- The mediator will make sure you are not talking over each other and that the conversation remains respectful.
- Sometimes having an outsider's perspective will help you see a situation differently.
- It is less intimidating than speaking with the judge.
- You may be able to be repaid quicker than going to court especially if you and your client come up with ideas on how they can repay you for the money you lent them.
- Mediation tends to be very successful between people who have a longstanding relationship and a relationship that will likely continue for the foreseeable future.
How can I try to mediate the dispute with my client?
In California, there are many organizations that provide free or low-cost mediation. Run a google search for "mediation near me" and you will find one of the many organizations providing mediation. Many times they are run by volunteer mediators.
Many California small claims courts also have free mediation available. Each county runs their small claims mediation a bit differently so reach out to us for more information on your court. You can either obtain free mediation on your hearing date or you may be able to request mediation before your hearing date.