I run a small contracting business, where I do a variety of odd jobs for local homeowners. When the jobs are big, I usually have the homeowners sign a formal written contract. But when the jobs are small – just a couple thousand dollars – I usually let it proceed with an oral understanding.
Last month, I did a small painting job for a homeowner. We agreed on the color, the timetable, and the price. When I finished, I sent him an invoice. He hasn't paid. He'd been dodging my calls and emails. What can I do? Do I need to sign a written contract for every little job?
Few things can be as frustrating for a small business than a customer who refuses to pay. Small contracting businesses have a great deal of overhead, between the equipment and the labor and materials necessary for the particular job. A non-paying customer can disrupt those cash flows. What should you do if a customer refuses to pay after you've rendered contracting services?
First, see whether you can discuss the situation. Was there a particular area of the work that the customer was unhappy with? If so, is it easily fixable – for example, installing a different doorknob or switching a small fixture? It might be worth your effort to put a bit more work into the project, if that will break down the barrier to payment.
Second, if the disagreement is larger or if the homeowner is simply unwilling to talk with you about the nonpayment, send a demand letter. A formal letter, written on your business letterhead, will likely be taken seriously by the homeowner – especially if you note that you are “reserving all legal rights” to collect on your earnings. The letter should be polite but firm, stating all of the facts and reminding the homeowner of his obligation to pay.
Finally, if the letter does not generate movement, you have a few options.
First, you can walk away. If the amount in controversy is small – maybe you did a paint job for $300 – perhaps your time would be better spent soliciting new business.
Second, if you do want to fight, consider filing a mechanic's lien. A lien can be filed on real property in the county clerk's office where the property is located. It is essentially a cloud on title; homeowners hate having liens on their property, because it makes it far more difficult for them to sell or finance the home. Speak with your county clerk about the specific procedure for filing a lien. Sometimes a lien will add the necessary pressure to force the homeowner to write you a check.
Third, consider suing the homeowner. A small claims court lawsuit does not require a lawyer, and puts the homeowner on the defensive.
The fact that you do not have a written contract is not a bar to the lawsuit or the mechanic's lien. Consider the different ways that you could prove the existence of the agreement, for example through emails or witnesses. You can also sue for the fair market value of the labor and materials that you've provided to the home, even without a formal contract in place. (As for whether it's worth signing written contracts over small jobs in the future, you will soon have a sense of how the time balances out, and may decide to make use of the written-contract option more often.)