3 Ways to Recover Your Unpaid Invoices

As a litigation lawyer, I encounter many cases of companies seeking payment for unpaid invoices. Here are 3 ways for recovering payment that companies in the same position should consider:

1.Non-legal solutions

Resist the urge to immediately resort to litigation. This should be a last resort. If the preservation of a mutually-beneficial business relationship with this company is a factor that matters to you, then you should remember that suing them can obviously do irreparable harm to that relationship. This doesn’t mean you should be a pushover though.

Think outside the box about possible non-legal methods you may have at your disposal to secure payment. Think about the nature of your business relationship with the other party. For example, do they rely on a steady supply of raw materials or services from you to be able to continue to operate their business? If so consider cutting them off until your invoices are paid. This may produce a very quick response. If not, and instead you rely on them to be able to operate your business, you may need to take a gentler approach and consider other strategic moves such as threatening to withhold or withdraw recommendations to other potential clients in the industry if the invoices are not settled by a certain deadline.

A good lawyer should be able to quickly understand the business environment in which you operate, help you weigh up all your options and recommend a course of action that is in your best interests and that costs you as close to nothing as practically possible.

2.“Lawyer up” – letter of demand

If you have exhausted all amicable resolutions to the non-payment of your invoices, it’s time to show the other party that you are serious about being paid and that you are not afraid to get nasty if it comes down to it. Often a strongly-worded and suitably intimidating letter from a law firm can do just the trick for adverse parties that just don’t seem to understand the importance of paying you for your products or services, and a law firm should not charge you an arm and a leg just to prepare such a letter.

A good letter of demand should briefly set out the basis for the claim you are making and what will happen if you don’t get paid within a certain deadline – usually the filing of a suit against the adverse party in court. If there is no real dispute as to whether or not the invoices are actually legitimate and for products or services that the adverse party did actually receive in good order, then ideally, this letter should trigger an early offer to settle. However, if the adverse party wants to be difficult or call your bluff by either ignoring the letter of demand or concocting some excuse for why the amount is not actually owed, you must be prepared to make good on your threat of litigation and follow through with the filing of a suit on the date you had promised. Otherwise you weaken any future negotiating position and risk not being taken seriously by the other company.

3. Formal dispute resolution

If none of the above worked, then and only then do you find yourself in the position of having to start formal proceedings. Litigation should always be the last resort because (i) it costs you money, (ii) it damages fruitful business relationships, some irreparably, and (iii) you always have to be prepared for the possibility that you might lose and if you do lose in court, that is the end of the road (unless an appellate court finds in your favour) – that invoice will never be paid. An uncertain outcome is part and parcel of any formal dispute resolution procedure, no matter how strong a case anyone tells you you may have.

If you have a written contract, it might contain a dispute resolution clause which may dictate the forum in which any dispute must be decided, usually mediation, arbitration, litigation or some combination of these. If not, then litigation is usually the default weapon of choice for a litigation lawyer. This is kicked off by the filing of a suit in court. The court and the procedure may vary depending on the nature and amount of the dispute. Your lawyer will advise you on this. If your dispute is under $10,000, you can do it yourself in the Small Claims Tribunals without a lawyer and this is advisable to ensure that legal fees don’t eat into any award you may receive. However, if you are unsure of the process a lawyer can advise on this, but will not be able to represent you in Small Claims Tribunals where parties have to appear themselves. Depending on the kind of dispute and the court you are in, you may be directed to mediation, where a neutral mediator will try to help both parties to reach an amicable settlement, which is then binding. If this doesn’t work, only then will the matter of who is wrong or right in law be argued before a judge.

However you decide to proceed, you should choose a lawyer who takes the time to understand your business objectives and present legal solutions to you in the context of how they fit in with your overall strategic objectives. Just because you might have a good case, legally-speaking, it may not necessarily follow that it makes good business sense to pursue it in court and any good litigation lawyer should be able to present his/her legal opinions in this context. Carefully choose a lawyer who takes his/her craft seriously enough to understand your business and your real interests and genuinely seeks to advise you on the most cost-efficient solution to your dispute, rather than taking a one-size-fits-all approach to litigation and immediately suggesting solutions that are more likely to result in high lawyers’ bills.