When Your Customer Refuses to Pay: 5 Tips for Damage Control

Maintaining financial stability in any business can be tricky, and many professionals in the home improvement industry struggle to stay afloat. Dealing with customers is equally difficult, since there is only so much you can do to force clients to pay on time – or at all. If you ever come across a customer who refuses to pay, however, there are several steps you can take to minimize damage to your business’ finances and reputation. Here are our top 5 damage control tips when your customer refuses to pay.

Unhappy employee or demotivated at working place

Be proactive

The best way to avoid payment refusal from clients is by asking them to sign a contract prior to beginning any home improvement project. In your contract, make sure to make crystal clear your payment policies and guidelines that specifically state what will happen should they fail to comply. Workplace insurance and contracts are essential for contractors, and are particularly useful in situations like these.

Another way to avoid late payments is by instituting a company-wide payment policy. Progress payments often work well for construction professionals: by asking for partial payment up front or payment through regular weekly or monthly installments, you can assure at least some amount of financial security for each project you complete. Clients will also appreciate this up-front approach and welcome the opportunity to spread out their payments – especially for long-term and larger scale projects.

Know your rights

If you do find yourself in a situation where clients refuse to pay regardless of any measures you have in place, there are ways to reduce the financial and emotional sting. By doing your research and knowing exactly what rights you – and your clients – have in these scenarios, you can be prepared for whatever happens.

If you and your client have agreed upon certain terms in a contract, they are legally bound to comply with these terms. Making sure your contract is clear and explicit in its terms will help you avoid payment issues and loopholes. In order to make sure your contract is watertight, you can enlist the help of other professionals in the industry or a legal advisor to give guidance and recommendations as to specific clauses and wording.

Occasionally, clients will refuse to pay some or all of their bills because they claim to be unhappy with the work you have completed. This can apply to timescales, materials used, and the quality of work. Depending on their issues and the state you live in, your clients may have a right to refuse payment – you can find out more about these kinds of situations by contacting a lawyer who specializes in construction law in your state.

Keep lines of communication open

While nonpayment can be a stressful occurrence for you as a business owner, it’s important to stay calm. Rather than bringing out the big guns immediately and contacting your lawyer, we recommend speaking with your clients first to find out exactly what is going on. Oftentimes clients will have perfectly valid reasons for late or missed payments for home improvement projects, and it’s just as important to maintain your reputation as an understanding and communicative businessperson as it is to get paid on time. If after speaking to your client you determine they will remain true to their word and contract, you can avoid legal fees and added stress for you and everyone else involved.

Give notice

If you have attempted to communicate with a client about late or missed payments and they have not responded, you can send them a notice of payment. By letting them know that they have a limited time to pay you or they could face potential legal action, you are giving clients a clear and firm reminder that they need to fulfill their end of the bargain – otherwise they will be breaching their contract.

Make sure your notice is clear: for example, after X amount of time passes, your action as a business owner will be Y. Remember to be firm with your deadlines. If your client still refuses to pay or makes no attempt to contact you, move on to your next step.

Contact your lawyer

After following the above steps (and provided your client is not refusing to pay because of anything you have or have not done), your client will hopefully contact you to resolve unsettled bills. If this does not happen, you should contact your legal team. Lawyers will be able to advise you as to what you should do in each individual circumstance, but generally you can:

  1. File a lein – a lein is an official filing of refusal to pay (more formal than a payment due notice), which can be done through your local records office.
  2. Sue – for breach of contract. This is a last resort, and one that should only be taken once all other avenues are exhausted and your client still refuses to pay or cuts communication ties altogether. In this case, your lawyer will ask you for proof that you have completed the work as promised and for any documentation associated with the project (so make sure to keep all these docs all the time, for future reference).

Although legal proceedings will certainly get things moving along in the right direction, it’s important to remember that they also carry significant risk for you and your business. Cases taken to small claims court or civil court will cost you financially and can take up significant portions of your time. Before you make the decision to sue, remember these points and ensure you have attempted every other option first.

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