Unpaid Invoice - USA

What to do?

If you have a client in the United States who is failing to pay your invoice then you have a number of options available to you to solve the problem. The obvious solution is to hire an attorney, but this can be very costly and you run the risk of the cost of exceeding your client's debt. Fortunately there are alternative and more affordable solutions such as mediation, arbitration, going to small claims court and filing with the Business Disputes Register. Here is a summary:

 

	Mediation	Arbitration	Small Claims Court	Reporting to the Business Disputes Register
Cost	Can be free or a few hundred $	At least $1000. Can be much higher	Around $100 plus legal fees if required	$20
Descrip-tion	An independant mediator helps both parties reach a negotiated settlement on a voluntary basis. Settlement is non-binding.	No negotiation unlike mediation. The independant arbitrator makes a judgement based on the information presented. Jusgement can be binding. Participation is voluntary but maybe dictated in contract between parties.	A judge makes a judegment based on evidence presented. Judgement is binding. Participation is mandatory.	The aggrieved party registers his/her dispute on a publicly available register. The adverse publicity will encourage the accused party to resolve the dispute.

 

File dispute on the Business Disputes Register

The simplest and most straightforward of all the options listed here. If you believe you are in the right and willing to make details of your dispute public then this is the best solution. Simply fill in the form giving details of your dispute with the other party ("unpaid invoice" or "breach or terms" etc). Your dispute is then automatically published on the internet on the disputes register for the general public to discover as a matter of public record. The other party receives an email notification about the dispute being filed on the Disputes Register and is urged to contact you to negotiate its removal. If the dispute subsequently reaches a satisfactory resolution then you have the option to remove it from the register - this is very important because it is what compels the other party to resolve your dispute. Not removing the dispute from the register could be very costly to the other party in lost business.

The dispute will appear on google searches of the accused's company name, often on the first page. This will have a detrimental impact on the other party's reputation which is why they will be inventivised to respond and resolve the dispute promptly.

 

 

Mediation

Mediation is where both sides agree to have an independant third party to mediate the dispute and help reach a negotiated settlement. For mediation to work, both parties must be willing to make compromises. Mediation is ideal when the two parties disagree, for example over quality of work provided by the supplier. Mediation is a voluntary process and therefore not binding, hence there is a risk that either party may subsequently decide to ignore the agreed settlement or walk away during the process. Depending on the state, some small claims courts offer a a free mediation service.

 

Arbitration

The difference between arbitration and mediation is not clear cut. Arbitration sits between mediation and a court hearing: there is no (or little) negotitation, but instead a presentation of arguments and evidence from both sides. It is up to the independent arbitrator to review the facts and reach decision. The outcome can be binding is the 2 parties agreed at the outset for it to be so. Dispute resolution through arbitration is often specified in a contract between client and supplier, and it will be stipulated here whether arbitration is binding. Check your contract as you may have an obligation to seek arbitration before resorting to the other dispute resolution options.

Expect fees to be in the range of $1,000 to $15,000 depending on the size of the claim.

There are many abitration providers is the US, here are a few:

• Expert database maintained by USCIB
• American Arbitration Asscociation, see fees here
• Arbitration Resolution Services
• International Chamber of Commerce cost calculator

 

 

 

Small Claims Court

If you want to take the other party to court then in most states you can use a small claims court provided the amount of the claim is below a certain limit which varies by state between $2,500 and $15,000 (see table below - the links will give additional information such as court fees). For small claims you do not have to appoint an attorney and can represent yourself. For bigger claims you will need to apply to a higher court and you should definitely seek the help of a professional attorney.

Even if the court decides in your favour, there is no guarantee that the other party ("the defendant") will pay up, and if that happens there will be more expense to pursue payment.

 

State	Claim Limit	Further info
Alabama	$6,000
Alaska	$10,000	Alaska Small Claims Handbook
Arizona	$3,500	A guide to the Operations of Small Claims Divisions
Arkansas	$5,000	info
California	$10,000 max (lower limits apply)	The Small Claims Court A Guide to Its Practical Use
Colorado	$7,500	Small Claims Handbook
Connecticut	$5,000	FAQ
Delaware	$15,000
District of Columbia	$10,000	Small claims page
Florida	$5,000	google the required county
Georgia	$15,000	google the required county
Hawaii	$5,000	Small claims page
Idaho	$5,000	Small claims page
Illinois	$10,000	Small claims page
Indiana	Marion County: $8000 others: $6,000	Small claims manual
Iowa	$5,000	Small claims page
Kansas	$4,000	Small claims information
Kentucky	$2,500	Small claims handbook
Louisiana	$5,000	LEAP guide
Maine	$6,000	Small claims court webpage
Maryland	$5,000	How to file guide
Massachusetts	$7,000	Small claims page
Michigan	$6,500	Forms
Minnesota	$15,000 (other limits apply)	Guide to small claims court
Mississippi	$3,500
Missouri	$5,000
Montana	$7,000	info
Nebraska	$3,600
Nevada	$10,000	Small claims overview
New Hampshire	$10,000	Small claims page
New Jersey	$3,000	Small claims guide
New Mexico	$10,000
New York	$5,000	Small claims page
North Carolina	$10,000
North Dakota	$15,000	Small Claims Court Actions
Ohio	$6,000
Oklahoma	$10,000	info (all accessible if you are in Oklahoma)
Oregon	$10,000	Forms
Pennsylvania	$12,000	Small claims pamplet
Rhode Island	$2,500	Small claims page
South Carolina	$7,500	Magistrates small claims court
South Dakota	$12,000	Small claims page
Tennessee	$25,000	Guidelines
Texas	$10,000	Texas State Law Library
Utah	$11,000	Small claims page
Vermont	$5,000	Small claims page
Virginia	$5,000
Washington	$5,000	FAQs
West Virginia	$10,000	Magistrate courts
Wisconsin	$10,000	Small claims guide
Wyoming	$6,000	Rules and forms

 

Send reminders

Lastly, before you consider any of the above, you should at the very leat send your client reminders: 2 or 3 reminders at several days intervals (week intervals are common practice). Each reminded should be more strongly worded. For example:

• Friendly reminder:  “This is a polite reminder that we have an outstanding invoice which is now [x] days overdue. [give details of invoice: invoice number, date, amount].  I understand that this is probably due to an oversight and I would appreciate if you could settle this invoice as soon as possible. Please let me know when I can expect payment?”
• Overdue notice: “We regret to inform you that our outstanding invoice is now [y] days overdue. We require immediate payment of this amount to avoid further action. Could you please let me know when we can expect payment? : 
• Final notice: “We have sent several reminders regarding our unpaid invoice which is now over [z] days overdue. This matter has now reached a critical point and we require immediate payment of this amount to avoid further action. This is the final notice. Please contact me immediately to let me know when we can expect payment of this outstanding amount.”