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This is a guest post from Andrew Kurpanek, attorney at Robinson & Henry.It's not always easy getting your customers to pay, especially if they are dissatisfied about the job or misunderstood a job's cost or payment structure. However, there are legal tools in every contractor's belt that can be used to force an unruly customer to pay, as well as protect against future debtors. Whether the current customer is paying less than they owe or refusing to pay altogether - here are some legal solutions a contractor can pursue.
Mechanics' Liens
A lien is made against the property that the construction work took place on and doesn’t allow the owner to sell or refinance the property until the debt is paid, or until the lien expires. Further, the contractor can even foreclose on the property. This can make it a very useful tool, provided the contractor works within the lien laws. For contractors that only provided labor, the deadline to file is two months after the last day of labor was performed, and four months for contractors that also provided materials. A contractor is required by law to notify the property owner of the Intent to Lien 10 full days prior to filing.
Read more about mechanics’ liens and get your free mechanic lien template here.
Take Them to a Small Claims Court
Small claims court is a popular option because it is usually quick, relatively cheap and has relaxed procedures. However, it is only for settling smaller debts of $7,500 or less. A contractor will file a Complaint (form JDF 250) in the small claims court of the county in which the defendant lives. The statute of limitations in a Colorado small claims court is three years on most contracts but can be extended to six years in some special situations. If a larger amount is owed to the contractor, then the contractor should consider filing a lawsuit in county court, where the limit is $15,000, or district court where the contractor’s recovery can be unlimited.
Use a Collection Agency
If a contractor has many unpaid accounts, or simply does not have the time to file a lien or complaint with the small claims court, then they can consider selling or assigning the debt to a collection agency. Assigning a debt to a collection company means that they will collect the debt on your behalf and will take a portion of the total debt amount. Selling the debt to a collection agency is often a last resort for older accounts as a collections company will usually buy the debt for cents on the dollar. Contractors can use the Better Business Bureau to find reputable companies and shop around for multiple quotes.
Create Smart Contracts
To protect against future non-payers, a contractor should think about adding provisions within their contracts. Payment terms and the consequences for not paying should be stated clearly within the contract. Cancellation provisions can be added so you can ensure payment should the job be cut short by an unhappy customer. A contractor can also think about adding a reasonable service charge for delinquent payments and a contract provision to make your customer liable for paying the contractor’s attorney fees if they do not pay their bill.
Robinson & Henry is a one-stop law shop. We help individuals, families and small business throughout the Front Range area. Our litigation attorneys, like Andrew Kurpanek have logged hundreds of courtroom hours and have helped many contractors recover hundreds of thousands of dollars.
Whether you are a subcontractor, materials suppliers or general contractor, we offer a variety of legal resources, including liens, collections advice, contract drafting, contract review, mergers, employee disputes, IRS CDOR tax defense and DOL representation. Learn more about us by visiting our website.