Doing Business With a Nonpaying Customer

Two people shaking hands. Only their forearms are visible.A former customer – a nonpaying customer – called and wants to do business again. Should you do business again with the nonpaying customer?

For some, the answer is an unequivocal no. For others, it’s a maybe. Such was the topic of conversation at this past week’s LMNOP workshop. This is the dilemma for many inside and outside the New York real estate industry.

A successful developer, owner, or general contractor may have many jobs going at once. You may be working on more than one job. It is possible for a subcontractor or supplier to receive payment on one job and not another, or you may receive payment on one invoice and not another.  For the projects you are working on and receiving payment, the jobs are profitable. But, when factoring in the jobs that there is no remittance, the relationship is perhaps not as profitable as it appears.

Should You Do Business With a Nonpaying Customer?

The situation is one that many of us have. Should we do repeat doing business with a nonpaying customer hoping things will be different this time? And, if the answer is yes, how can you change things on your end to ensure that you will not get stuck again?

Unless you receive 100% payment in advance, the truth of the matter is that you will never be certain. You can have an iron-clad contract with guarantees from flush principals. But, at the end of the day, there aren’t any guarantees that you will collect the monies owed you.

Steps to Take If You Answered Yes

So, if you decide to do repeat business with the nonpaying customer:

  • Change your terms of payment.
  • Ask for a sizable deposit or retainer up front.
  • Anticipate that the customer will not pay.
  • Particularly as it relates to construction, if at all possible, have payments made out to you as the supplier or subcontractor instead of the nonpaying contractor.
  • Make sure you have a stop-work clause in your contract. It will allow you to stop work on the job if the customer is behind – even a day – on payment.

Do you want the best policies and procedures to use to ensure payment? We can develop those for you. If you haven’t received payment and wish to place a claim, we can start that ball rolling for you. In either event, contact us by email or by calling (212) 686-0100.

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