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Contractor Problems: How to Run Damage Control When a Client Won’t Pay

Contractor Problems: How to Run Damage Control When a Client Won’t Pay

By Natasha Burton

Construction manager runs damage control on contractor problems

When it comes to contractor problems, encountering clients who refuse to pay is probably the worst. You put your time and resources into a securing a job only to get stiffed. Bad customers come in all forms—from too-demanding types to those who can’t make up their minds on key details—but those who don’t give you what you’re owed can drain your patience and your pocketbook.

Luckily, you do have recourse when you’re faced with a customer who becomes MIA after you send the final invoice. Protect yourself—and, most importantly, get your money—by following the steps below. Having to run damage control is never fun but being savvy about the possibility of having to collect on a missed payment will save you headaches in the long run.

Get a Deposit Up Front

Of course, the best way to protect yourself from a bad customer is to request money up front—before you begin the job. This gives both parties a vested interest in the project: the homeowner commits financially to the work and you have an obligation to come through to do the job as well. A homeowner who refuses to give a deposit may be the type of person who will make trouble later when the final bill is due. Asking for compensation up front could help you weed out clients who may refuse to pay.

Try to Understand the Situation

There are a few main reasons customers don’t pay. One, of course, is that they simply don’t have the money. But the other, more common reason, is that they believe the work has not been done to their satisfaction or that they have a dispute with some part (or all) of the final bill. Give the homeowner the benefit of the doubt and take the high road in the latter scenario. Meet with him or her at the house and offer to do a walk-through or go line-by-line through the invoice to make sure everyone is on the same page. Do your best to make it right and work with the customer so that everyone is happy.

Document Everything

To protect yourself as you try to collect what you’re owed, make sure you have all requests for payment in writing. Emailing the homeowner gives you documentation about how you tried to collect what you’re owed, including any responses (or excuses) they may give you as to why the payment hasn’t happened. If you talk over the phone or meet with the homeowner in person, note the time, date, duration of the conversation and any relevant points discussed. Also, be sure to have all of your receipts for materials costs and invoices from your sub-contractors in the event that you need to prove the cost of the job to the homeowner or in court. This way, if you have to escalate the situation, you have concrete facts and backup to support your claims.

Take Legal Action

If it’s not a matter of customer satisfaction, if it’s just straight up ghosting on payment but the amount due is high enough to warrant going to court, then it’s time to take legal action. Small claims court is one option. Another option is to file a lien against the home, which would make it difficult for the homeowner to refinance or sell the property. Typically, homeowners want a clean title on their home, and they will likely be willing to settle with you, even for a partial amount, so you can all move on with your lives.

Don’t Let It Happen Again

While there are no guarantees that you won’t get up getting stiffed by a bad customer again, you can protect yourself from the get-go. In addition to insisting on collecting a deposit, be sure to draft a contract that the homeowner and you both sign—one that includes provisions on how you expect to be paid and when. Taking a loss after a job is, of course, bad for business and your bottom line. By running damage control before you break ground, you’ll have the assurance you need that you’ll get the money you’re owed.

 

Natasha Burton has written for Women’s Health, Livestrong, MSN.com, Cosmopolitan.com and WomansDay.com, among other print and online publications. She’s also the author of five books, including “101 Quizzes for Couples” and “The Little Black Book of Big Red Flags.”