Our client is a landscaper who did a job for a general contractor. He was not paid for the job. After months of attempting to settle matters amicably, he took the matter to small claims court and obtained a judgment against the contractor. The contractor still did not pay the money he owed, even after a judge ordered that he do so.  Our client pursued the contractor for two years, and received no payment.

One day the contractor called our client “out of the blue” and said that he was willing to pay his bill in full if he received a release. He explained that he was trying to close a business loan and need to clean up his credit. He agreed to pay in full provided he received a release and providing our client notify the court that the judgment was fully satisfied. 

Our client was overjoyed! It was winter, his slow season, and he really needed the money. He made arrangements to meet the contractor, received a check and gave the contractor a release. He went to the courthouse and filed the necessary paperwork stating that he been paid in full.

A few days later, he received word from his bank that the contractor’s check did not clear. The check had actually been written on an account that had been closed a year earlier. 

The contractor got what he wanted and was able to close the loan. It took our client another year to get paid, and he had to file police reports and hire a collection agency and attorney to commence a whole new action. Bad debt recovery is difficult enough without having to deal with fraud. Here are some steps he could have taken to protect himself:

• Demand payment in certified funds or wire transfer
• Provide release only when funds have cleared the bank 
• Hire a collection agency or attorney to handle the transaction 

It is also important to have a procedure in place to handle bad checks. We all want to believe that the people we do business with are on the level. The sad fact is that all are not, and small business owners need to protect themselves. 

Looking for ways to reduce bad debt in your business? We can help!