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I'm at a startup with about 30 employees and we are doing pretty well and have a good number of customers. One customer owes us about $10,000. Not enough to make it worth it to file a lawsuit but enough that we could use the cash. What can we do to encourage the customer to pay or to at least punish them to some extent for not doing so? Is there any point in reporting the lack of payment to Dunn & Bradstreet, BBB, or somewhere else? Any other ideas? |
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The answer depends on what you sold them. A software product? Consulting services? SAS? And how you sold it. If by PO, I assume you have a copy of the PO and its terms? For our software products we have stiff late payment fees (spelled out in advance). If they exceed 45 days without paying, we terminate their software license. (Which means they are using our software in direct violation of our copyright. We report all license terminations to the Software Business Alliance piracy site, and D&B.) We also do not accept partial payment for products- if you are late paying and don't include the late fee- we send the payment back. In any case never let your unpaid invoices accumulate. You should have a standard procedure, where late notices go out at 30 days, assessing your penalty fee, license terminations at 45 days (with an extra fee to re-instate the license), and at 60 days we turn the whole thing over to a collection agency. Find a local collection agency with an attorney on staff. You negotiate how much money they get in advance. In return, once you turn it over to them you do nothing. They dun the firm until they get the money or they go to court. When they go to court they always win. |
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First, if you and the deadbeat customer are in the same state, I'd suggest you check your state's laws on small claims court. Some states allow small claims cases for as much as $25,000. Small claims courts are informal, and it's really easy and inexpensive to sue through them. Nolo Press has good information on how to sue in small claims court. If that won't work for you, I'd suggest you find a business lawyer who litigates, and sit down with them. That will probably cost you $1-200 for a 30-60 minute consultation, and they can give you really good advice. The lawyer's first suggestion will probably be to have them write a legal nastygram. That will probably cost you another $1-200, and there's an excellent chance you'll get your money quickly once the deadbeat customer knows a lawyer is involved. If that works, it would be $2-400 plus an hour or so of your time to collect the $10,000, which I'd consider a pretty good deal. If that doesn't work, the lawyer can give you an estimate on the costs of a suit. You might be surprised at how inexpensive it can be. It's very common for business-to-business sales contracts to have a clause saying that if you have to go to court, whoever loses has to pay the court costs and the winner's legal expenses. (If you don't have a clause like that in your sales contracts, you should add one.) Also, even without such a clause, your lawyer might be able to include a claim in a suit asking to recover legal and court costs, and if things are as open-and-shut as you say, you'd stand an excellent chance of getting them. If you actually file suit, you're likely to get an offer to settle from the customer. There's a good chance they'll want to pay the original bill but not any costs related to the suit. So you should consider in advance what you might want to do if that happens. A collection agency will pretty much do all that without you having to make much effort, but they'll take a good-sized percentage of anything they get. So you need to figure out if you'd rather do it yourself and get more money, or have them do it for you and get less. I had a client who owed me over $10,000, but he was in another state, and the contract was with a shell corporation that had few assets. So I decided not to sue, not because the amount of money was so small, but because the chances of "piercing the corporate veil" and actually getting to the guy with the money were tiny. Even though the case was open-and-shut, I'd still likely have wound up with nothing. |
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First call accounts payable and tell them you have an invoice that is unpaid. Maybe they lost your invoice? Next, call the CEO of the company (or someone sufficiently high up). Be nice. Ask them politely if you can work out a payment plan. Sure, this might not work. But maybe they could pay you via credit card? Maybe they are about to go bankrupt? Maybe he tells you something that could help you out? After you've been nice and made sure you talked to a decision maker then either turn it over to accounts payable, lawyer up, or sue for the max small claims. |
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Take a lawyer. I dont know how much you earn, but in my universe it takes 15 minutes to push the stuff to a lawyer for standards processing. Customer pays costs. At the end that is a HUGH hourly rate. 10.00 USD are definitely worth pushing it through a standard legal channel. |
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