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Dealing with non-paying customers

View profile for Nigel Adams
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You stand back and admire your craftsmanship and attention to detail. The rebuild/repair/race preparation etc you have just finished is finally ready to be presented to your customer along with your bill. You have worked hard to get the project finished and you know that he will appreciate all your effort.

You promptly send your bill to the customer. No payment arrives so you send out reminders about the unpaid bill. Still no payment is made and you now need to decide what to do.

If you still have the car/engine/parts etc in your custody while your invoice is outstanding then you have the right to claim a lien – this means that you can continue to hold on to it until your invoice is settled. Often the customer will be keener on recovering his car or engine from you than he will be to argue over your costs and so by this means you would hope to extract payment.

If the customer still will not pay, the law provides a mechanism whereby you may be able to sell his property. The process is laid out in statute, the Torts (Interference with Goods) Act 1977, and must be followed carefully, but in essence formal written notices must be served on your customer informing him (among other things) of the following:

  • Your name and address
  • Details of the property belonging to him which you hold
  • The location where you are holding that property
  • The amount which is owed to you in respect of the goods you hold

After serving the notices if there has been no payment or collection by the customer, subject to the proviso below, you can sell the property and deduct what you are owed from the sale proceeds.

The sale of your customer’s goods might sounds like a powerful remedy, but there are inevitable risks in exercising it, such as having to:

  • Account carefully for the proceeds of sale to the customer; and
  • Ensuring that you use the best method of sale of the property which is reasonably available to you.

Most importantly of all though is the fact that this right of sale is unavailable where the customer has raised a dispute about your charges. A customer will generally have a reason for non-payment and very often this will be because he challenges the size of the bill or an aspect (or the quality) of the workmanship involved. It will be rare for him to fail to challenge the invoice in one of these ways (especially when chased for payment) and so in practice the opportunities to exercise a power of sale will be few and far between.

In cases where the customer has already collected his property from you or where you have been unable to recover your charges by the threat of selling or actually selling his property, you will be left with the basic problem of resolving his unwillingness to pay. You might do this by having a direct negotiation with your customer, by having the dispute about payment referred to the Court for determination, or you might seek to use a method of alternative dispute resolution such as:

  • Mediation - a process of negotiation using a neutral third party to assist each side come to a voluntary agreement
  • Arbitration - a process in which a neutral third party makes a decision which is binding on the parties

Which method of resolving a dispute about your charges is appropriate to adopt in any particular case will depend upon an examination of the facts and matters giving rise to the dispute. Overall, perhaps the best guidance which can be given is to try to avoid arguments about costs from escalating by adopting a pro-active approach right from the outset. This may sound trite, but often it is possible to spot early on those customers who might cause trouble and to plan accordingly.

No matter how perfect your services, you will still end up with non-paying clients at some stage. However, there is no reason not to try to reduce the number of complainants and some simple steps which might be adopted are as follows:

  • Transparency - set out clearly in your contract what the price will be or, if that is unknown, set out clearly how the price will be calculated
  • No surprises - provide the customer with regular updates as to the level of costs
  • Involve the customer - allowing him to review progress of the work at your workshop will help problems to be identified early on, and will leave him less room to argue at the end of the job that he is unhappy
  • Deal with problems - ignoring problems will only make them worse and they invariably become harder to resolve – where possible deal with any issues as and when they arise

This guide is for general information and interest only and should not be relied upon as providing specific legal advice.  If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.