Should You Sue Your Customer?

Who doesn’t deal with an unpaid invoice for services? Whether it's an outstanding bill for maintenance for a long-time customer or a one-time repair job, just about everyone runs into an unpaid bill. But before you decide to sue, consider this: A pool technician’s decision to sue often sets into motion a series of frequently unexpected events beyond his or her control. Therefore, before deciding to sue a customer, it's important to carefully analyze the likelihood of success and potential risk of loss in advance. To help, ask yourself the following questions:  

1. Was I legally permitted to do the work?

Many states require that a service or repair technician maintain a license to give a bid or perform certain type of work. California, for example, requires repair technicians be licensed by the California State License Contractors Board. Unlicensed contractors are not only forbidden from performing repairs, but they are also subject to civil and possible criminal penalties.

Nevertheless, I’ve spoken with unlicensed repair techs who have sued their delinquent customer, lost their case and then faced prosecution from the contractor’s board following a complaint filed by their customer. The rule here is clear: If you’re not properly licensed for the work, consider the job a "charitable contribution."

2. Was the job done to reasonable standards? 

I always tell my clients to put themselves in the position of the customer. Granted, it’s a tough thing to do, especially when you're emotionally invested in your position. However, this self analysis is necessary to properly assess your risk of loss. Shoddy workmanship is your customer’s best defense against your demand for payment — moreover, you may be looking at a cross-complaint for damages they say you caused. I recall a case where a service tech sued a customer for $150 in unpaid monthly services, only to face a cross-complaint for $5000. The customer argued that their bad plaster was caused by poor pool service — and the judge agreed. 

3. Is a day or two in court worth my time? 

Unless I’m getting paid by the hour, I avoid courtrooms. It's a waste of your time — time you could spend making money on other jobs. Also consider that in some states, your customer will have the right to appeal if he or she loses, resulting in even more unproductive time spent in court.

Alternate Options 

You might think writing off bad debts will create a loss for your business — but that doesn't have to be the case, so long as you have a structured approach when managing customer accounts.

First, establish a payment deadline and stick to it. A 30-day-old debt is likely to become a 60-day-old debt. 

Next, consider building the cost of bad debts into your overall pricing structure. If, for example, 5 percent of your revenue is uncollectable, increase your pricing by that same amount. Consider bad debts as an overhead expense, like insurance or wear and tear on your equipment and truck. You shouldn’t have to raise your prices much if you practice good control of your accounts receivable.

Suing a customer should rarely be necessary. But when required, it should be the last resort following a deliberate business strategy of risk assessment and account management. In other words, think before you sue. 

This story was originally featured in the January 2014 IPSSAN.  

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