Assume that you are a service provider and most of your jobs are worth about $10,000. For the most part, people pay on time and you do not have any problems. But then you encounter a client who refuses to sign the contract. You need the work, so you agree. The client pays half the balance, and you complete the work. Now the client refuses to pay the remaining balance, claiming that the work was not performed properly.
The first problem is that you broke the number 1 Rule: Never do business on a handshake. If you do need to go to court, you will have a harder time proving what you were hired to do and what the client expected you to do. Hopefully, you have a quote, invoice, or other documentation available to support your claim, but the contract is really key here.
So, you’re without a contract, but you are still owed about $5,000. Your claim is too big for the $3,000 small claims court jurisdictional limit, so you’re thinking of filing a lawsuit in City Court. But you’re not sure where to go or what to do or how to do it. So you start thinking about hiring an attorney. You call a few attorneys requesting quotes for a contingency fee. Some say 25%, some say 40%, others say something in between.
Now start looking at those numbers. By the time you cover expenses and pay an attorney, you may only expect to recover $3,000. That’s a good bit less than $5,000. You may also have a hard time finding an attorney. Litigation is expensive, and if the most you can offer is 40% of $5,000, or $2,000, you may have a hard time finding an attorney who’s willing to take your case.
So what’s missing here? You need to have a contract that allows you to recover reasonable attorneys fees and costs if the client fails to pay. First, the client must sign the contract. If they breach, a contract calling for attorneys fees is much more attractive to an attorney than one that does not. With this provision in place, you may collect your $5,000, and the attorney fee and costs may be paid by the defendant, rather than coming out of your share.
Don’t get stuck in an agreement that gives you rights but doesn’t give you the teeth necessary to enforce those rights.