Enforcing Your Company’s Right to Payment: Key Considerations for Commercial Contract Disputes

When your company is entitled to payment, a client’s or customer’s failure to pay can raise various issues. If the non-payment materially impacts your company’s cash flow, securing prompt payment could be an immediate concern. But, even if your company isn’t necessarily relying on the payment that is due, you will still want to consult with an experienced Miami contract dispute attorney who can help you make informed and strategic decisions about how best to proceed.

While client and customer non-payments can (and often do) lead to commercial contract disputes, in some cases, efforts to achieve an amicable resolution may be warranted. For example, if the client or customer relationship is important to the company, preserving it could be the ultimate priority. With that said, companies also need to ensure that important relationships do not become expensive ones, and if an important client or customer has become unreliable, it may be time to consider available options.

When Is Legal Action Warranted?

So, when is legal action warranted? Fundamentally, companies have the right to pursue legal action any time a client or customer breaches their contractual obligations. This includes breaching the client’s or customer’s obligation to pay in full when payment is due.

In practice, however, there are additional considerations. Along with considerations related to preserving the relationship, these include considerations related to the costs of enforcement. The likelihood of collecting the amount due is a key consideration as well:

• Preserving the Relationship – If the relationship is important, working out an amicable resolution may be the best approach. For example, if the client or customer is having short-term cash flow issues, then providing a one-time grace period for payment may be warranted.
• Costs of Enforcement – The costs of enforcement can vary significantly. In some cases, a formal demand letter may be enough to let the client or customer know that your company is serious about getting paid. In others, pursuing mediation, arbitration, or litigation (or some combination of the above) may be necessary.
• Likelihood of Collection – If the client or customer is insolvent and has filed for Chapter 7 bankruptcy, the likelihood of collecting the amount due may be fairly low. If your company is unlikely to collect any arbitration award or court judgment it secures, this is a factor that warrants consideration before moving forward.

Ultimately, deciding how best to proceed requires a detailed assessment of the specific circumstances at hand. When pursuing legal action is warranted, taking action promptly is important, so company owners and executives should consult legal counsel to start the process.

What Are the Legal Options for Dealing with a Non-Paying Client or Customer?

With these considerations in mind, if your company is dealing with a non-paying client or customer, what are your company’s legal options? Depending on the specific circumstances at hand, your company’s options may include:

Attempting to Work Out an Amicable Resolution

In many cases, attempting to work out an amicable resolution will be a desirable first step. Understanding why a client or customer hasn’t paid can be essential in this regard. Is the client or customer experiencing short-term cash flow issues? Is it facing bigger financial issues? Is it dissatisfied with the product or service it received? Does it disagree that payment is due? These are all very different scenarios that may require distinct approaches.

Sending a Demand Letter

If a client or customer is not receptive to attempts to reach an amicable resolution, the next step may be to send a formal demand letter. Sometimes, this can help spur non-paying clients and customers into action—whether this means paying in full or seeking a mutually agreeable concession. If it doesn’t spur a non-paying client or customer into action, it will help set the stage for the next step in the process.

Initiating Mandatory Alternative Dispute Resolution (ADR)

Many commercial contracts include mandatory alternative dispute resolution (ADR) clauses. If it is not possible to achieve a satisfactory resolution through other means, it will eventually be necessary to review the relevant contract to determine whether mediation or arbitration is required. If mediation or arbitration is required, making an informed decision about how to proceed will also involve reviewing the contract’s venue selection, governing law, and cost-shifting provisions.

Filing a Lawsuit in State or Federal Court

If ADR isn’t required, or if a client or customer doesn’t respond to a demand for mediation or arbitration, then the best (and perhaps only) course of action may be to file a lawsuit in court. If going to court is your company’s best option under the circumstances at hand, it will be important to thoroughly assess all potential claims, counterclaims, and defenses. With a clear understanding of your company’s likelihood of success (and likelihood of collection), you will be able to make a sound decision about whether incurring the costs of pursuing litigation is warranted.

Protecting Your Company’s Interests in the Client’s or Customer’s Bankruptcy

As we mentioned above, if a client or customer hasn’t paid because they are financially unable to do so, this raises important questions about the viability of collecting through any means. This is especially true if the client or customer has filed for bankruptcy, particularly a liquidation bankruptcy under Chapter 7. But, even in this scenario, your company may have options for protecting its interests, and you will want to consult with your company’s legal counsel about its legal options within the bankruptcy process.

Discuss Your Company’s Options with a Miami Contract Dispute Attorney at Gonzalez Law Offices, P.A.

If you need more information about your company’s legal options for enforcing its right to payment, we invite you to get in touch. To speak with an experienced Miami contract dispute attorney at Gonzalez Law Offices, P.A. in confidence, please call 305-676-6677 or contact us confidentially online today.