You have heard every excuse in the book. You did the work. You delivered the product. The customer signed the contract. And now, when it comes time to pay the invoice, they have gone silent—or worse, they are outright refusing to pay.
Cash flow is the lifeblood of any New Jersey business. When a client withholds payment, they aren’t just breaking a promise; they are putting your payroll and operations at risk. Here is how to move from “asking nicely” to legal enforcement.
Step 1: The Contract Audit
Before you escalate, pull the file. You need to ensure your house is in order.
- Signed Agreement: Do you have a fully executed copy of theclient service agreement?
- Scope of Work: Can you prove you delivered exactly what was promised?
- Payment Terms: Does the contract specify interest on late payments or liability for attorney’s fees?
If the customer claims they aren’t paying because the work was “subpar,” this is a standard defense. You will need emails, delivery receipts, or sign-off sheets where they approved the work along the way.
Step 2: The Demand Letter
Forget the friendly reminder emails. If an invoice is significantly overdue, you need to send a formal Demand Letter.
This is not just an invoice; it is a legal precursor to a lawsuit. It should state:
- The exact amount owed.
- The contract clause that was violated.
- A strict deadline for payment (usually 10 days).
- A statement that legal action will follow if payment is not received.
Often, simply seeing that you have engaged legal counsel forbusiness debt collection support is enough to get a check cut overnight. No business wants to pay legal fees over a bill they know they owe.
Step 3: Assessing “Unjust Enrichment”
What if your contract was verbal, or the signed document is missing? You are not necessarily out of luck.
You can pursue a claim under the theory of Quantum Meruit or Unjust Enrichment. Essentially, the law states that one party cannot benefit from the labor or goods of another without paying for them. If the customer accepted the benefits (e.g., they are living in the house you renovated, or using the software you coded), they have to pay the fair market value, contract or not.
Discussion: For a deeper look at how other business owners handle non-payment, thisReddit thread on Small Business Legal questions offers some practical (though not legal) anecdotes.
Step 4: Litigation vs. Arbitration
If the demand letter is ignored, you have two paths, usually dictated by your original contract.
Arbitration:
Many modern contracts have mandatory arbitration clauses. This is a private process, generally faster than court. The arbitrator’s decision is binding and can be turned into a court judgment.
Litigation:
If you must go to court, the venue depends on the amount:
- Small Claims: Up to $3,000 (New Jersey).
- Special Civil Part: Up to $15,000.
- Superior Court: Amounts over $15,000.
Be aware of the “sunk cost fallacy.” If a client owes you $2,000, spending $5,000 on legal fees doesn’t make sense unless your contract allows you to recover those legal fees from the defendant. This is why we always recommend having an attorney conduct acontract compliance review before you start a project, ensuring “fee-shifting” clauses are included.
Don’t Let It Slide
Allowing a customer to walk away without paying sets a dangerous precedent. It devalues your work and signals to the market that your payment terms are suggestions, not requirements.
Whether it is a simple collection matter or a complex dispute regarding deliverables, you have options. Enforce your contract, demand your payment, and protect your bottom line.
