Your business also has customers who visit your business daily, or who are invoiced upon services rendered. Your business expects to be paid when the money is requested. So, what options do you have when the money stops coming in? How long should your business negotiate before legal action is taken? The answer depends on your business’s relationship with the person or other business who is indebted to your business. Sometimes a lawsuit is necessary, but other times, it is not the best option.
Your first option to collect money is to look at what your business already has in place. Are there contracts for the timing of payment? Is there an agreement for a payment plan that can be put into effect? It is always best to have a document between your business and those you provide services to for how your business gets paid for those services.
When your business does not have contracts or agreement in place to detail how your business is paid, look at how your business has interacted with other businesses and clients in the past. Has your business always received payment for your services on the first of the month, even without a contract? Does your business receive a certain percentage of what is owed, and the remainder a couple of weeks later? These patterns of practice can be relied upon for justifying when you believe your business will be paid.
Businesses or a business and customer can often agree on a settlement by looking at the contracts or agreements already in place, or they can rely on how similar situations have been handled in the past. A simple reminder from your business to the other party can go a long way. This is the best solution for maintaining the business relationship, and your business’s reputation in the community.
When two businesses or a business and a customer do not agree on either the amount of money owed or when money is owed, a demand for payment or a lawsuit may be in order. A demand letter is often the first action taken when money is owed, but the parties are not ready to file a lawsuit. The demand letter will set out the particulars of when and how the money should be paid to avoid a lawsuit. Often, the demand letter will provide the party that owes money a limited amount of time to satisfy the debt. If the debt is not satisfied in that time, then a lawsuit is the next step.
A lawsuit for money owed to your business can focus on the contracts or agreements in place, or there can be an emphasis on the normal course of business, or pattern of practice. Either basis will require your business to show how much money is owed, when it was due, and from whom the money is owed.
As a best practice, your business should have contracts in place with other businesses and customers. Keeping detailed records of past transactions between your business and other businesses or customers helps set out a pattern if a demand letter or lawsuit becomes necessary. When negotiation between the parties breaks down, an attorney will be able to step in and send a demand letter or file a lawsuit on your business’s behalf.
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