A business’s cash flow usually reflects a critical factor in its success, or in some cases, its survival. Not receiving payment for goods delivered or work performed may cause a setback for many operations. A company may, however, file a lawsuit for nonpayment.
As described by Business.com, contractual agreements typically define the scope of work and payment schedule. Agreements generally also provide details outlining how each party will fulfill its terms.
Clear terms and payment timelines help prevent breaches
Parties often agree to a payment schedule that includes a deposit before work begins. Other terms can outline when parties may receive refunds, lose their deposit or terminate without breaching the agreement.
A payment schedule may include a partial remittance when reaching a project’s milestone and then a final payment after the project’s completion. The scope of work may require increasing or decreasing the number of milestones.
Failure to pay may result in a legal action
If a party fails to pay after a significant amount of work has begun, legal action may provide relief. In an example reported by the Sacramento Bee, after a property developer began preparations to construct a sports stadium, the sports team’s owner refused to pay.
According to the Sacramento Business Journal, the developer’s lawsuit seeks almost $2.5 million in damages for work already performed. The developer initiated preconstruction work based on the team owner’s alleged assurances that funding existed to complete the project, but invoices submitted for work performed went unpaid.
When performing work in reliance of a promise to pay, a business has a right to compensation. Legal action may otherwise recover damages, including costs for returning to normal operations as they were before work began. Maintaining signed and detailed agreements may benefit both parties, but verbal promises may also influence failure-to-pay disputes.