What to do if a Client Refuses to Pay Contractor?

Independent contractors are always looking for new construction projects to work on. After completing the construction projects, most contractors expect a payment.

However, there are times when a client refuses to pay. Clients refusing to pay can lead to a loss of money and future resources. This blog discusses what you as a contractor can do it you face this issue.

There are several reasons why a client may not pay a contractor after finishing a job. One of the most common reasons is that the client is not satisfied with the job. The client may feel that the job was done with lackluster effort, or it was not what they were expecting.

Unfortunately, this issue most likely arises from miscommunication which leads to clients refusing to pay. To avoid miscommunication, it is best to have the specifications of what you will be doing in your contract.

Other reasons your clients might fail to pay are:

• Refuting the terms of the contract: Some clients will try and dispute the terms of the contract to change the payment. They may even say the pricing is confusing at the date of the payment.
• Payment Delays: This is where clients continue to delay making payments on the finished project.
• Low Value Perception: Businesses will treat independent contractors like employees. They do this so they can avoid paying and wage laws.
• Cash-Flow Issues: Companies managing cash flow issues may push the contractor's invoice to the side until they have all the money.

While some clients can get away with not paying, there are options you can take to secure payment.

It can be frustrating for many contractors to not receive their payment at the end of the construction project. However, it is important to first begin by sending a friendly reminder to the client.

Not all clients are trying to avoid paying the price. Follow the steps below to ensure the client does not forget to pay.

Send a friendly reminder to the client

Sending a friendly reminder is a great way to keep peace with the client. Although you do not need to send a reminder, sending one can improve customer retention.

Make sure the invoice lets them know the payment is past due and that it was not received.

Send a payment or debt collection letter

If the client does not send the money after the friendly reminder, you must send a payment or debt collection letter.

A debt collection letter is a more direct way of asking the client for payment. The letter typically consists of the due date, when the payment is due, methods of payment, and what will happen if the payment is not received.

Meet with the client

After a period, if the payment was not processed or received, it will be time to meet with the customer. During this meeting, you can talk about the potential issue and see if there is a potential resolution.

Remember to discuss the terms of the independent contractor agreement and see why the payment has been delayed.

Final demand letter

If the payment is still not received, send a final demand letter. In this letter, you will make similar statements about debt collection. The only difference is that you will also inform the client that you will sue if they do not make the payment.

Make sure to hire an attorney to write the demand letter. When an attorney writes the letter, it will likely get more attention and avoid the possibility of legal loopholes.

Take Legal Action

While it is not common, there are times when a contractor must take legal action against the client. In most cases, you can take the client to a small claims court.

Small claims court is a great way to get in front of a judge without needing an attorney. If the client does not show up, you win by default, and they are made liable for all outstanding balances.

Depending on the state, small claims court limits can range from $2,500 to $25,000. If the claim goes over the limit, you can still file in small claims court. However, you will only get the amount up to the state's limit.

If the small claims court does not work out, you can also file a civil suit. Civil suits are ideal if the amount owed is more than the small claims limit. In civil suits, it may be best to hire an attorney.

There are several types of construction contracts. These include:

• Lump Sum Contracts
• Time and Materials Contracts
• Unit Price Contracts
• Guaranteed Maximum Price Contracts
• Cost-Plus Contracts

Along with the contracts, contractors expect a payment. One of the more common types of payments is a completion-based payment. Another type is a milestone based payment. For both payment methods, contractors expect to have a payment at the end of the project.

Going through the process of getting money after a project can be very draining and time consuming. To prevent this from happening, you can take some necessary steps for future project payments.

1. Write a construction contract agreement that details the specific scope of work you will be doing. In the contract make sure to include the payment terms and the accepted method of payments. Remember to include who the invoice is being paid to. State in the contract the number of days before the late fee will go to a collection agency and then to small claims court.
2. Create a contractor's payment schedule. This payment schedule allows you to set a specific due date after you complete the project. Maintain a contractor invoice template to go along with the payment schedule. Invoices create a paper trail for courts to follow if there are any disputes.
3. Have the client read and sign the agreement as well as the payment schedule. Your client's signature acknowledges that they have read and understand the terms of the agreement. However, do not pressure clients into signing any documents. Doing so can void the entire agreement.
4. Request a deposit fee to be due before performing the job.
5. Record and clarify everything you are doing on the job.

Contractors that finish construction projects expect to get a payment when they finish. However, some clients refuse to pay or do not have the money at the time. After the work is completed, contractors might need to send reminders, meet with the client, or even take legal action to get their payment.