In small contracts with customers, make sure you can get paid

June 28, 2022

No one wants to sue their own customers... particularly for a few hundred or a few thousand dollars. But when a customer refuses to pay an invoice for completed work -- and in some other situations, too -- sometimes that's the best option.

Here in Florida, Small Claims Actions are a viable route, with simplified procedures and lower overall costs. And they're currently available for claims of up to $8,000. But even then, pursuing a claim without help from a lawyer might require more of your time than the claim is worth, particularly if it's way south of the $8,000 threshold.

I've seen many photographers put mediation or arbitration clauses into their agreements with clients, hoping to reduce both friction and legal fees. But mediation and arbitration frequently lead to unexpected -- and disappointing -- results. Mediation, by definition, isn't binding. You can mediate with your non-paying client until the cows come home, and they can turn around and completely ignore the mediation results. And arbitration, while binding, has its own issues: arbitration isn't cheap. Qualified arbitrators frequently charge thousands of dollars to resolve a case.

Finally, representing yourself in court isn't always an option. Smart entrepreneurs do business through business entities like LLCs and corporations, and here in Florida -- outside of most small claims actions -- business entities must be represented by licensed attorneys.

So we generally recommend including a clause in your customer-facing contracts that allows you to recoup your legal costs if you have to go after customers to pay their bills. And, counterintuitively, those clauses can be more important for small contracts than for huge ones. After all, if you're recovering $20,000,000, paying $10,000 in legal costs is just a road bump on the way to a $19,990,000 payday. But if you're fighting over $5,000, paying even $5,000 in legal bills and filing fees means you'll never make the claim in the first place, and that $5,000 is as good as gone.

But if your contract is properly drafted and the nonpaying client is on the hook for those legal costs... the entire amount of that unpaid bill can get back in your pocket where it should be. And your lawyer won't mind taking the case, even if it's for a small amount.

Clauses like these are one reason you should have your customer- or client-facing contract reviewed and drafted by a qualified business attorney. And that's what we're here to do.

Contact us today if you'd like to discuss your business legal needs.