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What Should Design Professionals Do When a Client Refuses to Pay?

04.19.18  |  By Douglas R. Halstrom

Receiving payment for services is one of the main concerns of any Design Professional engaged in private practice.  In order to avoid this problem, a couple of simple practice tips should be incorporated.  First, make it a habit to have a signed Contract that sets forth the payment terms which not only include the total compensation, but the schedule of payments you wish to receive with amounts and due dates or milestones, should that be appropriate.  This creates a simple, clear road-map which demonstrates the amount you are going to be paid and the date/milestone by which you expect to be paid.  Second, make sure your invoicing clearly reflects the timeline of payments made and those to be made in the future. In other words, your invoicing should reflect that your client is being billed for the second progress payment or that you are billing the appropriate amount for completion of the Schematic Design Phase.  Having a clear paper record serves to make billing easier for your client by avoiding confusion and, hopefully, making sure you are paid when you expect to be paid.  Third, try to keep your client updated about the project via email or letter so that it is clear the milestones are being achieved and the client is receiving what it wants prior to issuing payment.

Should a problem arise and the client is not paying timely or in accordance with the schedule put in place, it might become important to minimize any further damage from continuing to work without compensation.  While not being paid in accordance with the schedule can be a basis to stop work under certain circumstances, your Contract should also reflect the ability to terminate or suspend services should payment not be received in accordance with that Contract.  However, even if the Contract does not include these provisions, it is imperative that you communicate with the client in order to address this problem.  You should start with a meeting to discuss the issue, followed by an email or letter to reflect the items discussed should it become apparent that receiving payment might be a continuing problem.  Continued communication is critical so that each party’s concerns are addressed.  Your objective should be to gain control of the outstanding receivable before it escalates and creates an even bigger problem, and communication can be the key to avoiding this nightmare.

Finally, in the event payment has slowed to the point of non-existence, your final step may be to terminate the relationship in order to avoid further damage.  However, the Design Professional needs to be mindful of whether this is appropriate under the circumstances.  In making that determination, you should examine whether you have performed your end of the bargain to date and whether termination will possibly create a delay claim in favor of the client if the Design Professional unreasonably terminated.

Mr. Halstrom is a Partner in L’Abbate, Balkan, Colavita & Contini, LLP’s Garden City, NY office where he concentrates his practice in the defense of architects and engineers professional liability claims. 

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