Unpaid Invoice in California - What to do
One of the biggest frustrations a business owner can encounter in running a business is having a client who refuses to pay their invoices, this is especially true in California where the problem is increasing. This article discusses the options for dealing with an unpaid invoice in California, including mediation, going public, using a collection agency and taking legal action.
One way to resolve an unpaid invoice is through mediation which involves a neutral third party who helps both parties reach a compromise agreement. In California, there are many mediation services available, including government agencies such as the California Department of Consumer Affairs and the California Department of Business Oversight.
The Pros of mediation are:
- Confidentiality: proceedings are confidential and information shared during the mediation cannot be used against either party in court or other legal proceedings.
- Cost-effective: mediation is typically less expensive than going to court or arbitration, as it requires fewer formalities, paperwork and legal fees.
- Preserves Relationships: Mediation can help preserve relationships between the parties by promoting open communication and mutual understanding, which can be especially important for businesses that have ongoing relationships or may need to work together in the future.
- Voluntary: Mediation is voluntary, and both parties must agree to participate. This can create a sense of ownership over the outcome and lead to greater compliance with the final agreement.
- No guaranteed outcome: Unlike a court decision, mediation does not guarantee a specific outcome or resolution which can be frustrating for parties who are seeking a clear decision or want to exert more control over the outcome.
- Limited legal remedies: Mediation cannot provide the same legal remedies as a court decision, such as an injunction or award of damages.
- Power Imbalance: In some cases, there may be a power imbalance between the parties, which can affect the ability of the mediator to facilitate a fair resolution.
- Not binding: Mediation agreements are not legally binding until they are incorporated into a formal contract or settlement agreement.
- Time-consuming: Mediation can be time-consuming, especially if the parties have difficulty reaching an agreement or if multiple sessions are needed.
- Potentially expensive: Mediator’s fee can add up to thousands of dollars which may be greater than the value of the dispute.
The cost of mediation in California for a small business dispute can vary depending on various factors, such as the complexity of the case, the experience of the mediator, the length of the mediation session, and the number of sessions required to reach a resolution. The fees for a mediator can range from $200 to $600 per hour. Mediator typically charge for a minimum of two to four hours per session. Some mediators may also require a retainer fee, which can range from a few hundred to several thousand dollars, depending on the case. In addition, there may be additional costs associated with the mediation process, such as rental fees for the mediation venue or administrative fees charged by the mediation provider.
Overall, the cost of mediation for a small business dispute in California can range from a few thousand dollars to tens of thousands of dollars, depending on the specific circumstances of the case. That said, it mediation is generally less expensive than going to court, which can involve significant legal fees, court costs, and other expenses.
In summary, mediation can be an effective method for resolving business disputes, especially when the parties are willing to participate and work towards a mutually acceptable resolution, however, it may not be suitable for all situations.
An option to seriously consider is going public with your complaint. This can involve posting negative reviews of the client on social media, leaving negative feedback on their business profile, or contacting a consumer protection agency. However, it's important to be aware of California's defamation laws, which can hold you liable for making false statements about someone.
Going public with a business dispute involves making the details of the dispute public knowledge, often through media outlets or online platforms such as the Business Disputes Register (https://disputesregister.org) , involves registering the dispute on a public database for the purpose of facilitating resolution.
The Pros of using a service like the Business Disputes Register are:
- Low cost: the cost of a publication fee ($38) is a fraction of the cost of mediation, or going to court.
- Increased Visibility: Going public with a business dispute can attract more attention to the matter, potentially putting pressure on the other party to resolve the dispute in a timely and fair manner.
- Deterrent Effect: The fear of negative publicity may deter other businesses from engaging in similar conduct, potentially preventing similar disputes in the future.
- Accessibility: A public database can make it easier for businesses to find information about existing disputes and potential conflicts, potentially helping them avoid similar situations in the future.
- Transparency: A public database can promote transparency and accountability, as parties to a dispute may be more likely to act fairly and in good faith if they know that their actions are being recorded and publicized.
- Facilitation of Resolution: A public database provides a platform for parties to a dispute to come together and work towards a resolution, potentially reducing the time and cost associated with resolving the dispute.
Cons of Going Public:
- Legal Implications: Going public with a dispute can have legal implications, such as breaching confidentiality agreements or a risk of defamation if false information is published.
- Privacy Concerns: Registering a dispute on a public database may raise privacy concerns, especially if sensitive or confidential information is involved.
- No Guarantee of Resolution: Registering a dispute on a public database does not guarantee that the parties will be able to reach a resolution, and in some cases, it may even exacerbate the conflict.
In summary, going public and using a service like the Business Disputes Register has many pros but is not without any cons, and such action should be carefully considered based on the specific circumstances of the case.
Use a Collection Agency
A collection agency will take over the debt and work to collect the money owed to you. In California, collection agencies are regulated by the California Department of Consumer Affairs.
The fees charged by debt collection agencies in California can vary depending on the agency, the type of debt, and the amount owed. There are also legal restrictions on the amount that can be charged by debt collectors in California, for example, debt collectors are limited to charging 10% of the total amount owed on a consumer debt. If the debt is a commercial debt, there is no limit on the fees that can be charged.
Many debt collection agencies work on a contingency fee basis. This means that they only get paid if they are able to successfully collect the debt. Typically, the contingency fee ranges from 25% to 50% of the amount collected, depending on the age and type of the debt.
- Professional expertise: Debt collection agencies have expertise in dealing with unpaid debts and know how to navigate legal and regulatory requirements. They can take the burden of debt collection off your shoulders and handle it professionally.
- Improved chances of recovery: A debt collection agency has more resources and experience than an individual business owner to locate and contact debtors. This can improve your chances of recovering the debt.
- Save time and effort: chasing an unpaid invoice can be time-consuming and frustrating, especially if you are busy running a business.
- Legal protection: Debt collection agencies understand the legal regulations surrounding debt collection in California and will ensure that all collection efforts are compliant with the law. This can help protect you from potential legal risks.
- Fees: Debt collection agencies typically charge a percentage of the debt amount, which can range from 25% to 50%. This can be expensive, especially if the debt is small.
- Damage to business relationships: If you are a small business owner, using a debt collection agency to collect an unpaid invoice from a client could damage the relationship you have with that client.
- Negative reputation: If the debt collection agency uses aggressive tactics or violates debt collection laws, it could damage your business's reputation.
- Unsuccessful recovery: There is no guarantee that a debt collection agency will be successful in recovering the debt. If they are unable to collect, you may still be left with the unpaid invoice and the cost of hiring the agency.
Here is a list of collection agencies in California:
- Nelson, Cooper & Ortiz, LLC - https://www.nelsoncooper.com/
- The Kaplan Group - https://www.kaplancollectionagency.com/
- IC System - https://icsystem.com/
- Collection Bureau of America - https://www.collectionbureauofamerica.com/
- American Credit Collections - https://www.americancreditcollections.com/
- Cal-Com Federal Credit Union - https://www.calcomcu.org/
- Hunter Warfield - https://www.hunterwarfield.com/
- Accounts Receivable Management, Inc. - https://arm1.com/
- Caine & Weiner - https://www.caine-weiner.com/
- AllianceOne Receivables Management, Inc. - https://www.allianceoneinc.com/
- Coast Professional, Inc. - https://www.coastprofessional.com/
- AMCOL Systems, Inc. - https://www.amcolsystems.com/
- Action Collection Agencies - https://www.actioncollectionagencies.com/
- Central Credit Control, Inc. - https://centralcreditcontrol.com/
- Commonwealth Financial Systems, Inc. - https://www.cfsi-debt.com/
- Nationwide Credit, Inc. - https://www.ncirm.com/
- Bay Area Credit Service, LLC - https://www.bayareacredit.com/
- Professional Credit Service - https://www.professionalcredit.com/
- Harris & Harris, Ltd. - https://www.harriscollect.com/
- Debt Recovery Solutions - https://www.debtrecoverysolutions.com/
Take Legal Action
If all else fails, you may need to take legal action. In California, you can file a lawsuit against the client in small claims court for up to $10,000 (see below) or in civil court for larger debts. Keep in mind that legal action can be expensive and time-consuming, so it should be a last resort.
- Determine if you have a valid claim: Before taking legal action, it is important to determine if you have a valid claim. This means reviewing your contract or agreement with the debtor to see if they owe you money and if you have followed all the necessary steps to collect the debt.
- Send a demand letter: The first step in taking legal action is typically to send a demand letter to the debtor. The demand letter should explain the amount owed, why it is owed, and provide a deadline for payment. This can often resolve the matter without the need for legal action.
- File a lawsuit: If the debtor fails to respond to the demand letter or refuses to pay, the next step is to file a lawsuit. This involves preparing a complaint, filing it with the court, and serving it on the debtor. The debtor will then have a certain amount of time to respond to the complaint.
- Prepare the complaint: The complaint is a legal document that outlines your case against the debtor. It should include details about the debt owed, why it is owed, and any evidence that supports your claim. You may want to consult with an attorney to help you prepare the complaint.
- File the complaint with the court: To file a complaint in California, you will need to go to the courthouse in the county where the debtor resides or does business. You will need to file the complaint with the court clerk and pay a filing fee, which varies depending on the amount of the claim. The filing fee can range from $30 to several hundred dollars. In addition to the initial filing fee, there may be other fees associated with filing a lawsuit in California. For example, there may be fees for serving the complaint on the debtor, for requesting a trial date, and for other court procedures. These fees can add up quickly, so it's important to budget for them accordingly.
- Serve the complaint on the debtor: Once you have filed the complaint, you will need to serve it on the debtor. This can be done by mail, by personal delivery, or by hiring a professional process server. You will need to provide proof of service to the court to show that the debtor has been properly served.
- Wait for the debtor's response: After being served with the complaint, the debtor has a certain amount of time to respond. In California, the debtor has 30 days to respond to the complaint if they were served in-state, or 40 days if they were served out-of-state.
- Follow court procedures: Once the debtor responds, the case will proceed through the court system according to California court procedures. This can involve discovery, pre-trial conferences, and other court appearances.
- Discovery: During the discovery phase, both parties exchange information and evidence related to the case. This can involve interrogatories (written questions), requests for documents, and depositions (sworn testimony).
- Negotiation and Settlement: Before going to trial, both parties may engage in negotiation and settlement talks to try to resolve the matter outside of court.
- Pretrial Motions: Before the trial, either party may file pretrial motions to address certain issues, such as the admissibility of evidence or the dismissal of certain claims.
- Trial: If the case goes to trial, both parties will present their evidence and arguments to a judge or jury. The judge or jury will then make a decision on the case.
- Collecting the judgment: If the judge or jury rules in your favor and awards a judgment, you will need to take steps to collect the money owed to you. This can involve wage garnishment, bank account levies, or other legal means of collecting the debt.
To find information on court fees, you can visit the California Courts Self-Help Center website at https://www.courts.ca.gov/selfhelp.htm and select the "Filing & Paying Fees" section. This page provides a breakdown of the different types of fees that may apply to your case, as well as the fees for filing a complaint or other court documents. To download forms for filing a complaint, you can select the "Forms & Rules" section on the California Courts Self-Help Center website. Here, you can search for and download the specific forms you need for your case, such as the complaint form and summons form.
It's important to note that while the California Courts Self-Help Center provides valuable resources, it is not a substitute for legal advice. If you have questions about the court system or need assistance with your case, it's recommended to consult with an experienced attorney
Small claims court is a specific division of the court system that handles civil cases involving smaller amounts of money. In California, small claims court is designed to be a quick, inexpensive, and informal way for individuals to resolve disputes without having to hire an attorney.
Here are the general steps involved in the small claims process in California:
- Determine if your case qualifies for small claims court: In California, small claims cases can be filed for amounts up to $10,000 if the plaintiff is an individual or sole proprietor, or up to $5,000 if the plaintiff is a corporation or other entity.
- File a claim: To file a claim, you will need to fill out a small claims court form, which is available online or at the courthouse. You will need to provide information about yourself, the defendant, and the amount of money you are seeking. There is a filing fee, which varies depending on the amount of the claim.
- Serve the defendant: Once you file the claim, you will need to serve the defendant with a copy of the claim and a summons to appear in court. This can be done by mail, by personal delivery, or by hiring a professional process server.
- Attend the hearing: On the day of the hearing, both parties will appear before a judge or commissioner. The judge will hear each side's arguments and evidence, and make a decision on the case. In California, small claims hearings are generally informal and do not involve attorneys.
- Collect the judgment: If the judge rules in your favor, you will receive a judgment that orders the defendant to pay you the amount of money you are owed. If the defendant does not pay voluntarily, you may need to take additional steps to collect the judgment, such as garnishing their wages or placing a lien on their property.
It's important to note that while small claims court can be a useful tool for resolving disputes, it may not be appropriate for all cases. If your case involves complex legal issues or large amounts of money, it may be best to consult with an attorney and pursue your case through the regular civil court system.
- Legal firms that specialize in debt recovery and have offices in various towns and cities in California:
- Legal Recovery Law Offices, Inc. - Anaheim, Santa Ana
- Law Offices of Ronald S. Weiss - Los Angeles, Santa Monica, Woodland Hills
- Law Offices of Ronald A. Cabanayan - Los Angeles, Glendale, Orange
- Demler, Armstrong & Rowland, LLP - San Bernardino, Long Beach, Los Angeles
- Law Offices of Lucas & Haverkamp - San Diego, Orange
- The Law Offices of Mitch Dubick - San Diego, Vista
- The Fullman Firm, APC - San Diego
- The Law Offices of Stewart Lim & Associates - San Francisco, Oakland, San Jose
- Law Offices of Craig A. Brandt - San Francisco, Walnut Creek
- Chauvel & Glatt, LLP - San Mateo, San Francisco
- The Law Offices of David L. Crockett - Sacramento, Roseville
- Goldstein, Gellman, Melbostad, Gibson & Harris, LLP - Los Angeles, San Francisco
- AALRR - Atkinson, Andelson, Loya, Ruud & Romo - Cerritos, Irvine, San Diego
- The Law Offices of Steven L. Fritsch - Bakersfield, Visalia
- Borton Petrini, LLP - Bakersfield, Fresno, Los Angeles, Modesto, Sacramento, San Diego
- Solomon, Saltsman & Jamieson - Los Angeles, San Francisco
- Law Offices of Neil M. Pedersen - Irvine
- The Rutten Law Firm, APC - Los Angeles
- The Law Offices of John F. Bradley - Pasadena
- The Law Office of Michael Primus - Pleasanton, Walnut Creek
Dealing with an unpaid invoice in California can be a frustrating experience for any business owner. However, there are several options available to you, including mediation, going public, using a collection agency, and taking legal action. Before choosing a course of action, be sure to consider the potential costs and benefits of each option. With persistence and patience, you can eventually recover the money owed to you and move on from this difficult situation.