Sue a Customer Who Will Not Pay

Why this matters

The reminders went out, the collections call happened, the account is aged past anything the cadence covers, and the customer has stopped answering. Every card in the library about receivables ends roughly here, and the next decision is the one owners make worst, because by this point it feels like a decision about respect.

It is not. Five things decide it, and how right you are is not among them. One of them has a deadline that is probably running right now, one of them can turn your claim into a defence, and one of them determines whether you are even allowed to walk into the cheap courtroom without paying a lawyer to walk in with you. Work the gates before you work the grievance. Nothing here is legal advice, and the two gates with legal deadlines in them are checked against your own state's law rather than against this page.

Where the collections cards stop and this one starts

The cadence, the past-due call and the send-to-collections judgment are owned elsewhere. See related: AR Aging Collections Cadence, When to Send It to Collections, The Write-Off vs Pursue Decision. Assume all of that has run and failed.

What is left is a choice among four remedies, not a choice between suing and giving up: a lien or bond claim against the property or the payment security, a suit in small claims, a suit in regular civil court, and a structured payment agreement that never sees a courtroom. The gates below sort you into one of them.

Gate one goes first because it is the only one with a clock that runs while you deliberate. The other four do not expire, they only change the answer, and all four have to clear before you file anything.

Gate one: is a lien or bond claim still alive

For most trade work this is the better remedy, and shops miss it by measuring from the wrong date. Lien and bond deadlines generally run from the last date you furnished labour or materials to the property, not from the invoice date and not from the date the customer went quiet. A shop that spends sixty days being patient has usually spent most of its lien window being patient.

The mechanics, the preliminary notice, the furnishing-date clock and the residential-versus-commercial differences are owned by the lien cards; do not re-derive them and do not guess your state's period. See related: Construction Lien Law Basics, Mechanics Liens Collections, Getting Paid as a Sub and Protecting Your Lien Rights, The Lien as a Last Resort.

Why this beats a lawsuit when it is available: a lien attaches to the property rather than to the person, so it survives the customer's stubbornness and does not care whether they answer the phone. On a public job or a bonded private job the equivalent is a claim against the payment bond, which is a claim against a surety that has actual money and a reputation to protect, which makes it the strongest position in this entire card.

Two things to know before you record. Recording starts a second, shorter clock to enforce, and missing that one extinguishes the lien entirely. See related: Enforcing a Mechanics Lien After the Notice Worked. And a lien recorded on a residence where the homeowner has already paid the general contractor in full is, in several states, either barred or sharply limited; that question is for a lawyer in that state, not for you and not for this page.

Gate two: is there a complaint in the record

Search your own email and messages for the customer's name before you decide anything. What you are looking for is any written statement, from them, that something about the work was wrong.

If there is one, the arithmetic changes shape, because a collection suit against a dissatisfied customer invites a counterclaim for defective work, and a counterclaim is not a smaller mirror of your claim. It moves the subject of the case from a debt you can prove with an invoice to the quality of your work, which you have to defend, and it removes the invoice as the ceiling on what is at stake. That dynamic has its own card and it is the one to read before filing. See related: The Counterclaim That Turns Your Collection Into a Defence.

The useful version of this gate is not "do they have a real complaint", which you cannot judge about your own work. It is narrower and answerable: is there a complaint IN WRITING, dated before you started collecting. A complaint that first appears in the answer to your lawsuit reads to everyone as a response to being sued. One that appears in an email three days after the install reads as a customer who told you and got nothing, and those two documents have completely different weight.

Gate three: can they pay

A judgment is a declaration of debt that you then have to collect, and collecting it is its own project with its own cost. Run the collectability assessment before you spend, not after you win. See related: The Other Side Has No Money and What That Changes, and for the post-judgment toolkit, Winning and Still Not Being Paid.

For residential work this gate is usually cleared quickly: a homeowner with equity in the house is reachable through a judgment lien even if they never write you a cheque. For commercial work it is the gate that most often stops the whole exercise, because a tenant improvement customer can be an entity formed for that one project with nothing behind it, and the property it improved belongs to somebody else.

Gate four: the forum, and whether you are allowed to stand in it

Small claims is the only forum where a shop genuinely acts for itself, and the two facts that decide whether you can use it are both easy to check and routinely discovered too late.

The jurisdictional ceiling. Each state sets its own small-claims limit and raises it periodically, and they differ by a large multiple across the country. Read your state's current figure off the court's own page rather than off anything written a few years ago. A claim over the ceiling either goes to regular civil court or gets waived down to the ceiling deliberately, which is often the right trade: giving up the excess to stay in a forum you can work yourself can net more than pursuing the full amount through a process that bills by the hour.

Whether your entity may appear without a lawyer. This is the single most important eligibility fact in this card and almost nobody knows it before they need it. In California a regular employee who is not an attorney may appear for a corporate party in small claims under Code of Civil Procedure section 116.540, and attorneys are generally barred from representing parties there at all under section 116.530. Other states take the opposite position and require an entity to appear through licensed counsel, which removes the cost advantage the forum existed to provide. Call that court's clerk and ask before you file. Discovering it on the hearing date costs you the day, the filing and the momentum.

Gate five: what the market costs you

Residential shops overstate this and commercial shops understate it.

One homeowner's dispute does not travel unless your market is a subdivision, an HOA or a small town, in which case it travels completely. Weigh that against the opposite risk, which is real: a market that learns your shop does not chase unpaid balances produces more unpaid balances, and the customers who notice first are the ones you least want.

For commercial work the calculation is about the portfolio, not the customer. Suing a property manager who holds forty doors ends forty doors of work, not one job, and the manager who moves on to another firm takes the memory with them. That is not a reason to write it off; it is a reason to know what the recovery has to be worth before it is worth doing.

The option owners forget

Before the courtroom, there is a structured payment agreement, and it gets paid more often than a lawsuit does because it asks the customer for something they can actually do this month.

Make it real rather than hopeful: a written schedule with dates and amounts, a term that the whole balance falls due on a missed instalment, and where your state permits it, a stipulated judgment the customer signs at the outset which is filed only if they default. That last term turns a broken promise into an enforceable judgment without a trial, and whether your state allows the shape, and in what form, is a question for counsel. A related instrument, the confession of judgment signed in advance, is prohibited in consumer credit contracts by the Federal Trade Commission's Credit Practices Rule at 16 CFR 444.2, and several states bar it more broadly, so do not copy one out of a form book.

A worked run through the gates

A residential HVAC shop replaced a system ninety days ago. The balance equals roughly 14 billable tech-hours of the shop's capacity, which is the unit used below; owner hours are tracked separately because an owner hour and a tech hour are different currencies and adding them tells you nothing.

Gate one. The last furnishing date was 75 days ago. In this state the recording deadline is 90 days from last furnishing, so 15 days remain. Live, barely. Recording costs about 2 hours of office time plus the recording fee.

Gate two fails. The customer emailed twice in the first fortnight: the air handler is louder than the old one, and the upstairs thermostat reads high. Nobody went back. That is a dated, written complaint that predates any collection effort, and it is the strongest counterclaim seed there is.

Gate three. They own the house, they have lived in it eleven years, and the county record shows one mortgage. Collectable.

Gate four. The balance sits under this state's small-claims ceiling, and the clerk confirms a non-attorney employee may appear for the LLC. Available.

Gate five. A neighbourhood with an active online group and no post about the shop yet.

Gate two is the one that decides the sequence, and the sequence is not "sue". Record the lien inside the fifteen days, because it preserves the remedy without committing to anything and the clock is the only thing on this page that cannot be recovered. Then send a technician to the noise complaint and the thermostat: about 1.5 tech-hours and a part. That is roughly 11 percent of the balance spent to remove a defence whose ceiling is the entire balance and whose real ceiling, once a consumer-protection statute with a multiplier is in play, is several times it.

Then, with the complaint closed out and documented, offer the payment agreement with the default term. Filing suit stays available and costs about 6 owner-hours to prepare and attend, which is the last money spent rather than the first.

The failure mode here is the common one and it runs in a specific order: sue first, get served with a counterclaim about the noise nobody returned for, and spend the rest of the case litigating a complaint that could have been closed in a morning by the tech who was already in the area.

References

• Federal Trade Commission Credit Practices Rule, 16 CFR 444.2, prohibiting confessions of judgment in consumer credit contracts
• California Code of Civil Procedure sections 116.530 and 116.540, attorney representation and corporate appearance in small claims, as one state's rule among genuinely different ones
• See related: Construction Lien Law Basics, Mechanics Liens Collections, The Lien as a Last Resort, Enforcing a Mechanics Lien After the Notice Worked
• See related: The Counterclaim That Turns Your Collection Into a Defence, The Other Side Has No Money and What That Changes, AR Aging Collections Cadence