Collecting an Unpaid Invoice: The Steps Before Small Claims

“A customer won’t pay. What can I do?” More than you might think, as long as you do it in the right order and watch one deadline that does not wait for any of it. This article is the order: find out why, remind, demand in writing, protect your lien rights, then small claims. How to set up the payment schedule so less of this happens is in Getting Paid Faster.

Step 1: find out why before you push

An unpaid invoice is one of three things, and each needs a different answer.

• A complaint about the work. A sticking gate, a missed spot, a change they think was included. Fix the punch list or answer the complaint in writing; until you do, every reminder reads as ignoring them.
• A cash problem. The money is not there this month. A written payment plan, with dates and amounts, can beat a judgment you then have to collect.
• No intention of paying. Then the rest of this article applies, step by step.

Step 2: a reminder sequence with dates on it

Put the sequence on the calendar the day the invoice goes out, so it runs whether or not you are busy. One workable pattern, as an example:

1. The day after the due date: a short, friendly reminder with the invoice attached again and the ways to pay.
2. A week later: a second email that asks a direct question: “Is anything about the job holding this up?”
3. Two weeks after the due date: a conversation, in person or by phone, and a note afterwards of what was said.
4. Thirty days after the due date: the demand letter below.

Keep everything: every email, text and note. If this ends in court, that file is your case.

The FDCPA does not cover you, but be careful anyway

The federal Fair Debt Collection Practices Act and the CFPB’s Regulation F are aimed at debt collectors: a business whose principal purpose is collecting debts, or one that regularly collects debts “owed or due ... to another” (12 CFR 1006.2(i)). A contractor collecting its own invoice in its own name is normally outside that definition, and so are your employees collecting for you in your name (§1006.2(i)(2)(i)).

Two traps. First, the definition pulls in “any creditor that, in the process of collecting its own debts, uses any name other than its own that would indicate that a third person is collecting.” Do not send a letter from a made-up “recovery department” to sound tougher. Second, state law can reach further than federal law. California’s Rosenthal Act defines a debt collector as any person who, in the ordinary course of business, regularly, “on behalf of that person or others,” engages in debt collection (Civ. Code §1788.2(c)), wording that can reach a business collecting its own consumer debts. Good habits in any state: tell the truth, threaten only what you will actually do, and do not discuss the debt with the customer’s neighbors, employer or family.

Step 3: the demand letter

The demand letter is the last polite step and the first formal one. California’s court self-help guide says “the court wants you to ask the other side for the money you think they owe you before you start a small claims case,” in person, by letter or by email, telling them how much and why. Check what your own state’s court expects. Put in it:

• The amount, the invoice numbers, the contract date and any signed change orders.
• What you have already done: the dates of your reminders and conversations.
• A firm deadline, such as 14 days from the letter, and how to pay.
• What happens next if it is not paid: a small claims case, and a lien if you have one and will really record it.

Send it in a way you can prove, and keep a copy. A letter with a date and a court named in it reads differently from a reminder.

Step 4: check the lien deadline now, not later

This is the step that is easy to miss. A mechanics’ lien deadline runs from when the work ended, not from when you gave up on reminders, and it can be short. In Florida, for example, a claim of lien must be recorded “not later than 90 days after the final furnishing of the labor or services or materials” (Fla. Stat. §713.08(5)). Thirty days of patient reminders can use up a third of that window.

So on the day an invoice goes past due, write the lien deadline on the calendar next to the reminders. The deadlines for California, Florida and Texas, and whether to record a lien at all, with its own notices and pitfalls, are in Mechanics’ Liens for Small Residential Contractors.

Step 5: small claims

Small claims court is built for people without lawyers. The limits are set state by state; three examples:

• California: up to $12,500 for a claim brought by a natural person, and up to $6,250 for other plaintiffs (Code Civ. Proc. §§116.221 and 116.220(a)(1)). The state’s guide shortens that to “up to $6,250 if you’re a business,” but the Contra Costa Superior Court explains that a sole proprietor working under a business name counts as an individual and may claim up to $12,500, while a corporation, partnership or anything other than a sole proprietorship is held to $6,250. No one may file more than two claims over $2,500 anywhere in the state in a calendar year (§116.231(a)). The filing fee is between $30 and $100, a trial date typically comes in about one to two months, and you may ask a lawyer for advice but cannot have one with you in court (California Courts self-help guide).
• Texas: small claims cases are filed in justice of the peace courts, whose limit is set by Government Code §27.031; a claim can be for no more than $20,000, “excluding statutory interest and court costs but including attorney fees, if any” (Texas Rules of Civil Procedure 500.3(a), as quoted by the Texas State Law Library). The library adds that you cannot agree to accept less just so you can file there.
• Florida: the small claims rules cover demands of up to $8,000 “exclusive of costs, interest, and attorneys’ fees” (Fla. Sm. Cl. R. 7.010(b)).

Bring the paper: the signed contract, change orders, invoices, photos of the finished work, your reminders and the demand letter. A judge is deciding what was agreed and whether you did it, and the file answers both.

One threshold question comes first: were you licensed for the work? In California, a contractor may not bring an action to collect for work that needs a license “without alleging that they were a duly licensed contractor at all times during the performance of that act or contract” (Bus. & Prof. Code §7031(a)). In Florida, a contract entered into by an unlicensed contractor is “unenforceable in law or in equity by the unlicensed contractor” (Fla. Stat. §489.128(1)). If your state requires a license for the job and you did not hold one, talk to a lawyer before you file anything.

After you win

California’s guide is blunt: “You have to collect the money if you win your case. The court does not do it for you.” Your court’s self-help pages explain the collection tools your state allows. If you would rather hand the account off, a collection agency collecting a homeowner’s debt is a debt collector under Regulation F and has to follow its rules; an attorney is the other route for larger amounts.

The short version

1. Ask why, and fix any real complaint first.
2. Run dated reminders, and keep every message.
3. Collect in your own name, truthfully.
4. Calendar the lien deadline the day the invoice is late.
5. Send a demand letter with a deadline.
6. File in small claims if the amount fits, with the whole file in hand.

General information, not legal or tax advice. Rules change and vary by state; check with the agency named above or a professional for your situation.