Legal action for non payment is common in contract disputes. For example, if you own a business, whether big or small, one of the riskiest endeavors is engaging in contracts with other parties and having to trust that the other party will pay you on time under the terms of the contract.

In fact, accounts receivable, which involves the monies you earn for your business, is one of the most important items of consideration when operating your business.

When entering into contracts, you need to ensure that the other party is aware of the payment terms underlying the deal; the other party needs to know when it must pay, how much is owed, and how payment should be made. Otherwise, you run the risk of non-payment. However, if the other party fails to pay, you can bring a legal action for breach of contract. But when bringing this claim, you should identify the amount of damages and likelihood of recovering.

Determine Your Damages

Before you bring a legal suit for non-payment, you will want to determine whether or not it is worth the cost of the legal expenses associated with bringing the suit. How much do you expect to pay to hire an attorney and litigate the suit? Will such expenses be more than what the other party owes you? When making this determination, you will need to also understand what your damages are. Are you simply suing for repayment? Or are you also suing for additional monetary damages? Is the other party struggling financially? These are all important considerations when determining whether or not to bring legal suit for non-payment.

Analyze the Other Party’s Finances

Take a look at the invoice that the breaching party failed to pay; did the customer purchase goods or services? Take a look at the other business’s financial health. You can do this by analyzing the following factors:

  • Cash equity
  • Liquid inventory
  • Fixed assets
  • Real property
  • Stocks & bonds
  • Debts

If you are dealing with a customer who is dealing with poor financial health, i.e. insolvent or bankrupt, then you might want to try selling the debt to a debt collection agency and simply moving on from the issue

Make a Formal Demand

If you determine that you do want to bring legal action, you can begin the process by drafting a formal demand letter and sending it to the other party, regardless of whether it is a person or business. The following should be included in the demand letter:

  • Include how the other party is in default, i.e. unpaid invoice
  • Include how much is outstanding and owed
  • Demand payment of the outstanding amount, i.e. immediate repayment or require that payment must be made by or before a certain date
  • Include language as to the fact that you will continue with a formal legal suit if payment isn’t made by the due date

Filing a Lawsuit

This will generally include the initial filing of a complaint in a court that has jurisdiction. After you file the complaint, you can seek relief. For example, you can apply for a writ of attachment immediately after filing the complaint, which will ask the court to either place a lien on the defendant’s assets or allow you to take total control over such assets, particularly if they were identified as collateral in the initial written agreement between you and the defendant.

You can also use the discovery process as a means of gathering evidence and locating the defendant’s assets so you can understand what type of assets the defendant has for seizure.

Obtaining Judgment

There are three types of judgments that might be made, including a default judgment, summary judgment, or judgment after a formal trial has taken place. A default judgment occurs when the defendant fails to answer the complaint or appear in court. A summary judgment will be given if you file a motion for summary judgment asking the judge to simply make a determination that the defendant is in default for not paying, thereby ignoring the need for a trial. Lastly, a judgment can be made after a formal trial has taken place in front of the judge and/or judge and jury.

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