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How Do I Deal with Late Payments & Deadbeats? Part II

Last month we talked about how to approach a collections situation where you worked very hard for someone else, providing them everything they asked, sometimes for hundreds of hours, but for whatever reason they didn’t pay you.

This month we will talk about a very similar situation where you provided goods or services and the other person isn’t paying you, but this time, it’s because they claim you ripped them off or screwed-up. This is the second most common excuse I hear for vendors that don’t cough up the cash (behind they just don’t have it). And … there is a rich common law and statutory history for refusing payment on this ground, ranging from “breach of contract” to “shipping non-conforming goods.” We’ll talk about it all below.

Disclaimer: The following information does NOT constitute legal advice and is only for general educational purposes. Each situation is different and specific legal issues usually require additional research and investigation, so do not rely on this article to address a particular legal issue; use this as a starting point to gain a general understanding. This article, although educational in purpose and substance, nevertheless, might be deemed attorney advertising, and prior results do not guarantee future success.

Possession Is 9/10ths of the Law

Have you ever heard the saying, “possession is nine-tenths of the law”?

It’s one of those aphorisms that is as true today as it was … well, whenever the saying was invented. It means that it’s so much easier to keep something you have that someone wants (like money or payment), than it is to sue someone to get it. Litigation is time consuming, stressful and often costs more than the money involved in the original dispute.

This is also the easiest course of action for someone to take for someone who doesn’t want to pay you or isn’t sure you deserve everything you are owed. It has the benefit of putting things off, maybe forever. People, even good people with what they believe is a legitimate dispute, might avoid paying you, just so they can avoid dealing with the issue. After all, conflict is difficult and stressful. Who wants that?

Don’t Call the Cops

Well, if there is an actual dispute over the transaction, it is arguably legitimate for the aggrieved party to withhold payment until a full settlement of circumstances can be worked out.

Note, doing so is rarely criminal, although there can be exceptions, such as walking off with a store’s candy bar without paying. What’s the difference between that, and a merchant walking off with the goods you delivered to them without paying you? Well, for one thing, the grab and run candy bar thief had an intent to steal.

Now, supposing instead, a customer takes a candy bar off your store shelf. Ravenous, they begin to unwrap and eat it, on their way to the cash register to pay. While walking and chewing, they discover the candy bar is very stale or otherwise inedible. When they reach the register they show you a half eaten candy bar and explain it’s not quite right or even spoiled. Do they owe you the money? Ahh … good question. There are many complicated doctrines at work here.

You could try to have them arrested, but if you did and the candy bar was say poisonous because it had gone very bad, you might create more trouble for yourself as the store owner than was worth it. Alternatively, you could sue them for the price of the candy bar, but obviously that’s not worth the hassle for a dollar.

Let’s now substitute the candy bar for million dollar equipment that isn’t working as it should, the store owner for a manufacturer, and the customer for a giant corporation that needs the equipment. Now it seems a lot more complicated, the stakes are much higher, and the money involved definitely can justify the cost of lawyers and courts. And yet …the principles are generally the same. Neat how that works, huh?

Legitimate Disputes

There are many legal ways to approach a situation where someone orders something and doesn’t get what they ordered, or doesn’t believe so: mistake by one of the parties, mutual mistake, non-conforming goods, breach of contract, and so on.

Scenario #1: For instance, imagine you go to the store and ask the clerk for toaster. The harried clerk runs to the back, grabs a box from the “toaster section,” and hands it to you, and without closely inspecting the box, you bring it home and it’s not quite what you thought it was.

Scenario #2: You hire a computer programmer to design something for you to sell or service a third party. They perform. Issues arise later or during the process.

Mistake by Buyer: (Scenario #1) When you bring it home you realize it’s a toaster from the same company you wanted to order from, but whoops! You meant to say you wanted a “toaster *oven*” not just a “toaster.” That’s a mistake *you* made. (Scenario #2) you described a type of computer program end product in words that mean something to you, but reasonably by industry standards is often interpreted another way, and thus the design is “wrong” as far as you are concerned, but probably correct by industry standards. This also could be a mutual mistake.

Mistake by the Seller: (#1) The seller accidentally grabs the wrong make or model toaster before handing it to you. That’s their fault. (#2) the reverse happens - you used the industry standard, but the programmer is from a foreign country and misunderstood what you wanted, and provided a software program or application or services that are functional but not quite what you wanted or what the industry your geographic region would expect as correct.

Mutual Mistake: (#1) You don’t know the brand name, so you describe it to the best of your ability, the clerk grabs what he reasonably interprets to be what you meant and you didn’t double check before you left the store. (#2) You order programming services by industry standard, but there are two industry standards and you and the programmer thought it was the “other standard.”

Non-Conforming Goods: (#1) You bring the box home and the toaster is the same make, but not the same model. Or doesn’t work. This could also be a mistake by the seller, or breach of contract. (#2) Though it’s arguable whether this doctrine applies to services, basically someone designed or provided services than were other what you expected / ordered.

Breach of Contract: (#1) You come back home and toaster doesn’t work. Or they give you a box full of rocks. This also could be non-conforming goods. (#2) The computer program doesn’t work. Note, there is a rich body of law of how may “bugs” in your video game there has to be before that might constitute a breach of contract, especially when the developer is still fixing them, so please don’t sue Steam and the game designer during the first week of a rollout, no matter how frustrating that is, or how badly you want to power level before everyone else.

As I said, there are many court cases and statutes that address these and other types of issues that could arise.

So … What to Do - First Steps

Obviously, most merchants will take back something they gave you by mistake or even that you bought by mistake. If the problem is more complicated than that, my number one suggestion is, if you can, approach the other party with civility, calm and reason, attempt to determine the nature of the problem.

For instance, if they are broke, and you believe it, you can’t get water from a stone. I’m just saying, if they need a little time to get the money, work out a payment plan and let them get you the money over time. You’ll save a bundle, because good legal advice, well it don’t come cheap. Generally, you have a claim for nonpayment in New York for about six years, although you should do your own research to confirm this for your own particular situation (don’t rely on this article alone and don’t blame me if you waited too long). That said, maybe offer a payment plan or wait until they have money? On the other hand, if the non-paying party believes it didn’t receive the “benefit of its bargain” the correct toaster, the correct computer programming services, you need to figure out why, and see if you two can work out a compromise.

If the other party is not responding to your phone calls, write a formal letter (remember those?) and send it certified mail return receipt, that will catch their attention. The letter should open up cordially but forcefully, explaining you are owed $X for the type of services you provided. Then back up the letter with examples of value you added, and how you wish to avoid legal action, but if necessary, will pursue them through the courts. Before ending the letter, add some helpful alternatives, like (1) willing to discount the sum for immediate payment (2) offering a payment plan (3) be willing to discuss any legitimate criticism or concern they had with your work and work out a compromise.

Should that fail, in New York, currently you can pursue them in small claims or commercial court (depending on whether you are a “person” or a “corporation” and the nature of the action), if the action is $5,000 or below. This is a relatively informal court and you can get by without a lawyer. For larger actions, generally you will require a lawyer to represent you if you are corporation, but might be able to avoid one if you are just a person, acting as a consultant.

Bring in the Big Guns

If a quick and polite resolution is impossible, then maybe it is time to bring in a lawyer. My experience is that two lawyers can talk to each other more productively than two clients, but sometimes the reverse is true. It’s cheaper to try the latter first, which is the reason I suggest it, but if that’s not working, the two lawyers might negotiate the problem before it winds up in court.

This is because even though lawyers may attempt to outwit or outmaneuver each other, and their posturing will take up some of the time, they also have a very good sense of the law and possibility of success, and are trained to identify issues and get to the heart of the matter. Also, they are not personally involved. Most people, even lawyers, are poor advocates for themselves because of the emotional entanglement in the issue (hence the saying, “anyone who represents themselves, has a fool for a client”).

A Typical Therapy, I mean Negotiation Session

Either way, whether you are on your own or have the assistance of trained legal eagle, the process should be similar.

Typically, I send a similar letter to the one above, although mine is a lot more detailed and with some legalese in it. Then I follow-up with a phone call. If a simple deal cannot immediately be made (look let’s settle this for x% on the dollar), then it’s crucial to tease out the facts of each and every dispute and the associated timelines, and ensure the opposing side knows the legal and other strengths of our bargaining position. Clarity, consistency, thoroughness and fair dealing go a surprising way to resolving these disputes. Usually, one or both parties just doesn’t understand the position of the other. Here’s a typical exchange:

Disgruntled Non Payment Customer: “I told this consultant I wanted ‘A’, and they gave me ‘B’ which is not what I ordered.”

Chiseled Consultant: “I worked so hard for them. I put in 10 extra free hours, and the won’t even pay for me for the full time I earned before the extra time.”

Customer: “They wouldn’t have needed the extra time if they listened to me in the beginning.”

Consultant: “They weren’t very clear. I asked them over and over again, but they just were unable to communicate properly.”

… eventually …

Customer: “I suppose I could have been clearer.”

Consultant: “I suppose I should not have guessed at what they wanted, and either made sure they were clear or not taken the business until I was certain of what they ordered.”

You get the idea. By carefully going over their history of communications and pinning down when the problem of miscommunication began, and giving both parties “a say,” a lot of hard feelings can dissipate, permitting “business sense” to have a chance to take over and settle the matter for a price that seems fair to both parties. Often, after each side has vented to their own attorney, and to the other side (through that attorney), spending several hundreds or thousands of dollars in the process, they just get tired and split the difference somewhere between what they both wanted. And you know what? This kind of settlement is still cheaper and quicker than a protracted court case.


Non-paying vendors often fall into one of two categories: (1) they are broke (2) they have a beef. If it’s #1, see if you can work out a discount or payment plan. If it’s #2, first try to work it out on your own. Particularly with provision of services (as opposed to goods), it’s very common to have misunderstandings or disagreements over time spent and billed, milestones met, quality of work provided, etc. Do yourself a favor and be flexible.

If lawyers are really required, make sure you have your facts in order, save all important documents, especially communications and invoices. In the end, you’ll still need to flexible, unless you plan to go the distance in court which could take years and be far more expensive.

Better still, work with your client to keep the lines of communication open and maintain a good relationship if you can.


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