Small Business Disputes: Collect Payment and Resolve Conflicts

Unpaid invoices and business disputes can threaten your livelihood. Whether you're chasing down payment from a client or resolving conflicts with vendors, suppliers, or partners, understanding your options can help you protect your business. The U.S. Small Business Administration (SBA) provides resources for small business owners navigating these challenges.

Common Small Business Disputes

Payment Issues

• Clients not paying invoices
• Partial payment disputes
• Bounced checks
• Credit card chargebacks
• Payment plan defaults

Contract Disputes

• Scope creep without extra payment
• Client says work is unsatisfactory
• Vendor didn't deliver as promised
• Partnership disagreements
• Lease or rental disputes

Vendor and Supplier Issues

• Late or non-delivery
• Defective products
• Price disputes
• Contract term violations

Collecting Unpaid Invoices

Step 1: Friendly Reminders

• Send payment reminder at due date
• Follow up at 7, 14, 21 days
• Call to discuss
• Offer payment plan if needed

Step 2: Formal Demand Letter

Include:

• Invoice details and amount due
• Work performed or goods delivered
• Original payment terms
• Late fees if applicable
• Deadline to pay (7-14 days)
• Consequences of non-payment

Step 3: Escalation Options

• Small claims court: For amounts under state limit
• Civil lawsuit: For larger amounts
• Collection agency: For difficult cases
• Mechanic's lien: For construction work

Small Claims Court for Business

Advantages

• Low filing fees ($30-$200)
• No lawyer required
• Relatively quick process
• Effective for clear-cut cases

Business Limits by State

Note: Some states have lower limits for businesses:

• California: $10,000 (businesses)
• Texas: $20,000
• New York: $5,000-$10,000
• Florida: $8,000
• Check your state's specific limits

How to File

1. File claim in correct jurisdiction
2. Serve defendant properly
3. Prepare your evidence
4. Attend hearing and present case
5. Collect on judgment

Contract Dispute Resolution

Review Your Contract

• What did each party agree to?
• Are there dispute resolution clauses?
• What does it say about remedies?
• Are there arbitration requirements?

Resolution Options

• Direct negotiation: Try to resolve directly
• Mediation: Neutral third party facilitates
• Arbitration: Binding decision by arbitrator
• Litigation: Take to court

Common Contract Claims

• Breach of contract
• Unjust enrichment
• Quantum meruit (value of services)
• Fraud or misrepresentation

Dealing with Chargebacks

Preventing Chargebacks

• Use clear billing descriptors
• Send receipts and confirmations
• Respond to customer complaints quickly
• Keep detailed transaction records

Fighting Chargebacks

• Respond within deadline (usually 7-10 days)
• Provide proof of delivery/service
• Include signed contracts or agreements
• Show customer communications

Mechanic's Liens

For construction, repair, and improvement work:

How Liens Work

• Attaches to property you improved
• Secures payment for your work
• Can force sale of property to pay
• Strong leverage for payment

Requirements

• Strict deadlines vary by state
• Often requires preliminary notice
• Must be properly filed and served
• May need to file lawsuit to enforce

Working with Collection Agencies

When to Use

• Own efforts unsuccessful
• Debt is several months old
• Too many accounts to chase
• Debtor is avoiding you

What to Expect

• Contingency fee (25-50% typically)
• They handle contact and collection
• May affect customer relationship
• Reports to credit bureaus

Preventing Future Disputes

Strong Contracts

• Clear scope of work
• Specific payment terms
• Late fee provisions
• Dispute resolution clause
• Attorney fee provision

Payment Practices

• Require deposits for new clients
• Progress payments for large projects
• Invoice promptly
• Accept multiple payment methods
• Follow up immediately on late payments

Client Vetting

• Check references for large projects
• Credit check for significant credit
• Trust your instincts
• Start with smaller projects