You’ve done the work, you’ve sent the invoice, and now, silence. Few situations frustrate business owners more than completing quality work only to have a client refuse payment. It doesn’t matter if you run a consulting firm, construction company, or professional service business. Unpaid invoices can severely impact your cash flow and operations. They can also make you question why you went into business in the first place. Understanding your legal rights matters. So does knowing what remedies you’ve got available.
Review Your Contract and Documentation
Before you do anything else, pull out the agreement you have with the non-paying client. A written contract strengthens your position significantly. Look for specific terms regarding:
- Payment amounts and due dates
- Services or deliverables provided
- Late payment penalties or interest
- Dispute resolution procedures
Don’t have a written contract? You’re not out of options, but you’ll need to work harder. Gather everything you can find. Emails, proposals, invoices, and proof of completed work all help establish that services were rendered and payment is due. The more documentation you’ve got, the better your position.
Send a Formal Demand Letter
Many payment disputes actually resolve through direct communication. A formal demand letter serves as your official request for payment and demonstrates you’re serious about collecting the debt. Your demand letter should clearly state the amount owed, reference the original agreement, provide a payment deadline, and outline consequences if payment isn’t received. Keep the tone professional but firm. This letter creates a paper trail that becomes valuable if you need to pursue legal action later. Sometimes clients just need that extra push to prioritize your invoice.
Consider Alternative Dispute Resolution
Litigation isn’t always the most practical path forward. It’s expensive. It takes time. And honestly, it can damage business relationships you might want to preserve. Mediation or arbitration can save time and money while still achieving results. These methods allow both parties to work toward a resolution with the help of a neutral third party. Some contracts include mandatory arbitration clauses, so check your agreement to see if alternative dispute resolution is required before filing a lawsuit.
File A Lawsuit in the Appropriate Court
When other collection efforts fail, legal action may be necessary. The amount owed typically determines which court handles your case. Small claims court addresses disputes up to $6,500 in Michigan and offers a simpler, faster process without requiring an attorney. Larger claims go through the district or circuit court. These cases involve more formal procedures and benefit significantly from legal representation. A Troy business lawyer can evaluate your case and guide you through the litigation process, which gets complicated quickly when you’re dealing with substantial amounts.
Understand Your Available Remedies
Michigan law provides several options for collecting unpaid debts. A judgment in your favor allows you to pursue collection through wage garnishment, bank account levies, or property liens. The specific remedy depends on the debtor’s assets and financial situation. In some cases, you may recover attorney fees and court costs in addition to the principal amount owed. Your contract terms and applicable statutes determine whether fee recovery is possible. That can make a significant difference in whether pursuing legal action makes financial sense.
Know the Statute of Limitations
Michigan law imposes time limits on debt collection lawsuits. Don’t sit on this. According to Michigan Compiled Laws Section 600.5807, written contracts have a six-year statute of limitations, while oral agreements must be pursued within six years as well. Once the statute of limitations expires, you lose the legal right to sue for payment. Six years might seem like plenty of time, but these situations have a way of dragging on longer than you’d expect.
Protect Your Business Going Forward
Preventing payment problems is easier than resolving them after the fact. Much easier. Require deposits or milestone payments for larger projects. Run credit checks on new clients when appropriate. Include clear payment terms in every contract you sign. Some businesses benefit from requiring personal guarantees or securing liens on property before starting work. These protections vary by industry and transaction size, but they’re worth considering if you’ve been burned before. Working with Gudeman & Associates, P.C. helps you understand your options and choose the most effective approach.
When to Seek Legal Guidance
Payment disputes can become complicated quickly. Contract interpretation, procedural requirements, and collection strategies all require careful consideration. A Troy business lawyer can send demand letters on your behalf, negotiate settlements, file lawsuits, and pursue judgment enforcement. Professional legal assistance often motivates reluctant clients to pay what they owe. Sometimes, all it takes is a letter on legal letterhead. If you’re dealing with unpaid invoices or want to strengthen your contracts against future payment issues, reach out to discuss your specific situation and develop a strategy for protecting your business interests.
