Every tradesperson relies on a steady flow of income. Receiving payment is not only vital for the wellbeing of you and your family, but also you need some way to finance your crew and any materials that you’ll need for other projects. A client who refuses to pay disrupts that flow, so you should know exactly what to do if that circumstance comes up.
Here’s our advice:
Figure out why they don’t want to pay.
A client could be refusing to pay for any number of reasons. Perhaps they’ve suddenly gone bankrupt, they don’t think you did a good enough job, or they’re even trying to commit fraud. In any case, you want to get to the bottom of it.
Call them, email them, send them a letter, or go to the site of the project to try and engage in a dialogue with them. You may learn that the problem is fixable within a reasonable time frame, without having to take any legal action.
See if you can settle payments with them.
Once you have diagnosed what the issue is, see if you can negotiate pay with them directly. Use the information that you laid out in the initial contract as a reference. If you have done a poor job and the problem isn’t fixable, offer your services at a discounted rate than the original price. You should always push to get some compensation for the work you’ve done.
If you can, stop working.
Sometimes, however, negotiating can only go so far. If you are in the middle of your project, and are being compensated at different stages of the project, it is totally within your power to stop working.
Use this as leverage for your negotiation. The client hired you because they needed someone to get the work done, and that is likely still the case. If you refuse to keep working until you receive payment, then the client may be more inclined to pay you instead of dragging out the process further.
You can also look into filing a mechanic’s lien, which will put the owner of the property at risk of foreclosure if they do not pay you in time.
File for legal action.
If, however, you can’t afford to pause the project and the client still refuses to pay, you should look into filing for legal action. This should always be used as a last resort, since it is expensive and time-consuming.
Often, even the threat of legal action is enough to compel a client into paying. You can do this through a formal message, or even sending them a demand letter asking for payment.
If the client still doesn’t respond, then you should contact a lawyer who can walk you through filing your claim. Whenever you’re looking to file a claim in court, gather all of the possible evidence to make your claim stronger. This means coming with a contract that details what the work was, the price of your services, and how and when payments were supposed to be made. If you don’t have a contract, compile any emails, texts, or recorded calls you might have that demonstrate the agreement you made with the client.
Prepare yourself for next time.
Obviously, you want to avoid this scenario whenever you can. To avoid future situations where a client tries to avoid paying you, here are some tips:
Always have a contract Contracts are the most surefire ways to protect you and your crew from not getting paid. Make sure your contract specifies exactly when the work will be done, as well as any stipulations regarding payments. It is helpful to have a lawyer look over your contracts before you issue them to a client.
Look into factoring Setting up a system with a factoring business is also a useful way of getting paid quickly. Factoring takes place after an invoice is issued following the project. That invoice will then be sent to a factoring company that will pay you quicker for your services than the client likely will - this is usually within a few days. The pay you receive from the factoring company is deducted by a fee, which the company will hold onto until receiving the full pay from the client.
Whether or not you will use a factoring company should be decided before you take up a project, and written clearly in your contract.
Ask for a deposit upfront or a progress payment plan Most contractors will ask for a deposit or down payment to ensure they will at least receive partial pay for their work. It’s a helpful security to both you and your crew, especially if you are coordinating multiple projects. The industry standard for these upfront payments typically covers the supplies needed for the first parts of the project, usually 10-15% of the total.
Progress payment plans are helpful as well. They make sure that you are paid at different stages of the progress, instead of waiting for your entire compensation once the project is completed. This plan should also be spelled out in your contract, and they are usually reserved for larger jobs.
Tensions can flare up easily in contracting and trades work, especially when projects are moving slowly. To maintain a steady flow of work, always make sure you are being properly compensated.