The homeowners have been on your case since the start. They’ve been true pain-in-the-ass customers for whom no amount of explanation, reasoning, or indulging is enough to please. And just as you’re checking the last details off their very long punch list of unnecessary demands, Mr. and Mrs. Jones decide they’re not planning to hand over their final payment.
All too often, “bill collector” becomes one of the unfortunate hats small-business owners must wear. In some cases—whether the owed amount is long past due, or the customer just aggravated you that much—the urge to sue comes to a head.
But before you drag your clients in front of Judge Wapner, take a breath and decide whether going to court is the best option. From investments of time and money to the chance that maybe—just maybe—you’ll lose, there are many considerations to make before the gavel drops.
Consider: Your Court & Non-Court Options
When Lucas Papageorge took his roofing client to court for $6,000 in unpaid fees, the owner of LCP General Contractors, in Fairfield, Conn., hadn’t heard from his customer in months. “Normally, it’s not worth it for us to go to court unless you have a customer like her that’s not responding at all,” Papageorge says. “If there’s a dialogue and they’re just asking for a few discounts, we’re better off making that deal.”
Before entering the courtroom, Papageorge sent his client a letter of intent to sue—another tactic that often aids in collections. “Our letter says that if there’s no communication, we’ll file within the next three weeks, and we include a copy of the completed filing report,” Papageorge says. “They know you’re serious and send their payment.”
John Rusk, owner of Rusk Renovations, in New York, says arbitration and mediation are important options to consider before going to court. In some cases, they may even be required.
“If you’re using an American Institute of Architects (AIA) contract, parties have to first try mediation to settle disputes,” says Rusk, who is also a empaneled arbitrator and mediator through the American Arbitration Association. Mediation is a process in which both parties come to an agreement together with help from a professional. “In my view, it’s best to use mediation and settle it there. That way, you’re not turning the case over to a third party, you’re still in control, and there’s less risk of going to court or arbitration and running into witnesses or evidence you didn’t expect.”
In addition to being a mediator, Rusk also serves as an arbitrator. Essentially, arbitration is a private court in which a neutral arbitrator, who understands both construction and construction law, makes a decision based on who’s in the right. Cases that don’t settle in mediation are sent to arbitration if the contract contains an arbitration clause, or to litigation if it doesn’t.