Much attention is paid to strategies for keeping businesses out of litigation issues, but what happens when it might be time for a business to be the party that initiates legal action?

In any business, client relationships can break down; sometimes, through no fault of its own, a business is not correctly compensated for the work they have supplied and must consider how far it will go to rectify the issue. Bad payers are a problem most companies will face from time to time, and knowing what steps to take can make the ordeal a little easier to manage.

Some clients simply stop paying and communicating, which can be particularly stressful, especially if there’s a large amount owing and the work must be halted. Other times, vendors fail to provide the service or product a business has paid them for, and they, too, can become elusive and difficult to communicate with.

Taking legal action is the last resort, but sometimes there is no alternative; of course, it’s a matter of weighing up the financial pros and cons, but it’s also important to understand at what stage litigation becomes an appropriate option.

Here are the steps to take on the road to taking legal action against a client.

CAREFULLY REVIEW THE CONTRACT

Before you make any moves, it’s imperative that you carefully review the contract agreed between you and the client to ensure that you accurately represent both your and the other party’s responsibilities to the other.

In reviewing the contract, you can be absolutely sure that you have fulfilled your agreed obligations before reaching out to address their failure to do the same. It can be helpful to make a list as you go through the contract and record everything that has and/or has not been fulfilled.

If there is no one ‘contractual document’ to refer to, remember that any written records of agreements (such as emails) regarding expectations, prices, timeframes, etc., can also be used in lieu of an official contract. Of course, having a legal contract in place is ideal, but a chain of (email) correspondence is still useful.

ATTEMPT TO RESOLVE THE SITUATION DIRECTLY

When taking legal action, it’s essential to be able to clearly demonstrate that you have attempted to resolve the matter amicably (and a generous serving of good grace goes a long way, too).

When you reach out in an attempt to resolve the situation amicably, you are demonstrating good faith and reasonable intent should a court ever review the case. In the best-case scenario, however, your attempt to reach out directly will bring the matter to a satisfactory close without the need to take it to court.

Finding out why the client is refusing to pay can provide invaluable information that can help you to solve the issue amicably. Perhaps they are suffering unexpected financial hardship, and an agreeable payment plan can be established, or maybe they are unhappy with your work, and their complaints are rectifiable.

Reach out respectfully – always in writing to maintain a clearly documented trail of correspondence – and demonstrate your willingness to be mutually reasonable. You may be surprised to discover that the issue is more easily fixed than you thought. Otherwise, it’s time to take the next step — engaging a team of contract dispute lawyers to deal with the matter formally.

ISSUE A FINAL DEMAND

If no reasonable solution can be reached and the client continues to refuse payment, the next step is to have your lawyer send them a demand letter. A demand letter (also known as a formal or final demand) is a letter issuing a final warning of your intent to begin legal proceedings. A demand letter is often the first thing a judge will want to see that you have issued should you file a formal legal complaint.

A demand letter should clearly outline the amount owed, the date the payment was due to be paid, and advise of the legal action you intend to take if they continue to refuse to pay. Sometimes, a strongly worded demand letter highlighting the intent to initiate legal action is all it takes for a bad payer to cough up or commit to a payment plan to avoid court proceedings.

SUE VIA SMALL CLAIMS COURT

If the final demand letter proves fruitless, it’s time to consider suing the client in small claims court. The maximum amount that you can sue for differs between states; in Kansas, it’s $4,000, while in Missouri, the maximum is $5,000. Small claims courts are designed to facilitate quick and easy resolutions to relatively small disputes, avoiding the greater costs and time it takes to pursue legal matters in civil court. It may not be necessary to engage an attorney for a small claims matter, and verdicts are typically quickly returned after the hearing.

SUE VIA CIVIL COURT

It isn’t common to see a debt-related case handled via civil court, as the costs and risks of going to trial are usually enough of a deterrent to both parties. Nevertheless, the amount owing and the nature of the dispute may call for a County or District Court to solve. If the dispute goes this far, it will be necessary to engage with an attorney to help navigate the complexities of civil case procedures and ensure the best possible outcome.

THE BOTTOM LINE

Legal action should always be considered the last resort for obvious reasons. The time, cost, and stress involved in taking legal action should be avoided if possible, and no matter how watertight you’re sure your case is, the process of going to court can dish up some surprising turns that can prove it to be far less clear-cut than anticipated.

That said, if you have no choice but to pursue legal action, investing in expert advice from legal professionals can save you a great deal of time and money in the long run.