What To Do When a Key Client Stops Paying: A Step-by-Step Business Dispute Lawyer Playbook

A key client stops paying, and your whole business feels it. Cash gets tight, your team wonders if their work mattered, and you lose hours chasing answers instead of serving other clients.



The hard part is that nonpayment is rarely just a billing issue. It’s usually a contract issue, a communication issue, or a “something changed on their side” issue. Your response has to protect your company without setting fire to a relationship you might still want.

This playbook gives you a calm, step-by-step path: what to do in the first 48 hours, how to escalate collections without creating legal risk, and how to get litigation-ready if it goes that way. Early advice from a business dispute lawyer can prevent simple mistakes that cost real money later. You’ll also get a practical timeline, a documents checklist, and clear decision points.

First 48 Hours: Confirm the Facts and Protect Your Position

When a client doesn’t pay, speed matters for one reason: details are still fresh. People remember what was approved, what was delivered, and what was promised. Wait a month, and the story changes.

Your goal in the first two days is not to “win.” It’s to lock down facts, protect your rights under the contract, and avoid reactions that create new problems.

Here’s the mindset: low drama, high documentation.

A quick “do and don’t” to keep you out of trouble:

• Do confirm the invoice is correct, sent to the right place, and tied to the right scope.
• Do keep communications short, polite, and professional.
• Don’t threaten lawsuits on Slack or in a late-night email.
• Don’t post public reviews or warn other vendors. That can trigger defamation claims or breach confidentiality clauses.
• Don’t cut off access to mission-critical systems until you check the contract. Some agreements limit self-help remedies, and some work (like IT hosting or accounting access) can create serious downstream harm if shut off abruptly.

For professional service firms (agencies, consultants, IT providers, accountants), the most common causes in the first week are simple: the invoice went to the wrong person, the client is waiting on internal approval, there’s a scope dispute, or their cash is tight and they’re stalling.

Pull the paperwork: contract, SOWs, invoices, emails, and proof of delivery

Start by gathering everything into one folder. If you end up needing a business dispute attorney, you’ll save time and reduce legal spend if your materials are organized.

Collect these items (even if they feel repetitive):

• Signed master services agreement (MSA) or service contract
• Each statement of work (SOW), proposal, and pricing exhibit
• Change orders, scope add-ons, and approvals (even informal ones)
• All invoices, including the unpaid invoice(s) and any prior paid invoices
• Payment confirmations for earlier invoices (helps show course of dealing)
• Email threads about scope, approvals, and acceptance
• Meeting notes (including internal notes made right after the call)
• Time logs, project management exports, and deliverable lists
• Client portal records, ticket history, and “delivered” timestamps
• Acceptance messages (for example, “looks good,” “approved,” or “go live” emails)
• Any complaint or dissatisfaction messages from the client

If your work is intangible, proof matters more than you think. A marketing agency can show ad launch dates, creative files delivered, and campaign reports. An IT firm can show ticket resolution, access logs, and deployment notes. A consultant can show decks delivered and meeting outcomes.

That timeline becomes your backbone for collections and, if needed, litigation.

Check the contract for payment terms, late fees, dispute steps, and attorney-fee clauses

Next, read your contract like a checklist. Many CEOs remember the scope but forget the “if something goes wrong” section, where the power lies.

Look for these standard clauses, in plain terms:

• Payment terms: Net 15, Net 30, due on receipt, milestone due dates
• Late fees and interest: When they start, how they’re calculated
• Cure periods: A set time to fix a breach after proper notice
• Notice rules: How notice must be sent (email, certified mail, specific address)
• Dispute process: Informal escalation, mediation, arbitration, or court
• Venue and choice of law: Where disputes must be brought, which state law applies
• Suspension and termination rights: When you can pause work, and how
• Limitation of liability: Often relevant if the client alleges damages
• Attorney-fee clause: Whether the “winning” party can recover legal fees

Pay special attention to notice rules. Some contracts require written notice to a specific address and method. If you send a demand to the wrong email, you may not start the cure clock, which can delay your options.

A business litigation attorney can spot pressure points quickly (fee shifting, strict notice language, admissions in emails, or inconsistent client claims), especially before you send anything that locks you into a position. If you want help tightening your contract approach for disputes and enforcement, see Business contract lawyer services.

Before Court: Smart Collection Steps That Keep Options and Reduce Risk

A good collections process does two things at once. It increases the chance you’ll get paid, and it builds clean evidence if the client keeps stalling.

Think of this as a ladder. Start with a friendly reach-out, then move to a clear demand, then formal escalation. At each rung, document what you did and what they said.

Send a clear payment demand: what to say, what to attach, and how to send it

A demand letter doesn’t need legal jargon. It needs clarity, receipts, and a deadline.

A simple structure that works:

1. Amount due and what it covers: “$18,450 is past due for October and November services.”
2. Invoice list: Invoice numbers, dates, and amounts.
3. Contract cite: The specific payment term clause (one sentence).
4. Proof of delivery summary: A short list of the deliverables and acceptance points.
5. Payment deadline: Usually 7 to 10 days, depending on facts and your cash needs.
6. How to pay: ACH details, check address, card link, wire instructions.
7. What happens next: “If we don’t receive payment or a written dispute by X date, we will consider further action available under the agreement.”

Attach only what you need: the invoice(s), the contract or SOW payment page, and a short proof-of-work summary. Don’t attach your entire email history unless counsel asks for it.

How to send it matters. Email is fast and often enough, but contracts sometimes require mailed notice. If notice rules are strict, send both: email plus certified mail (or another trackable service), addressed exactly as the contract states. Save delivery proof.

When a demand is written by counsel, it often gets routed to the right decision-maker faster. A business dispute attorney can also help you avoid accidental admissions (like conceding scope issues) while still sounding reasonable.

Negotiate without giving up rights: payment plans, settlements, and releases

Many clients don’t pay because they can’t pay all at once. If the relationship is worth saving, a payment plan can be smart, but only if it’s tight and in writing.

A workable payment plan usually includes:



• A signed agreement (not “we’ll try” in email)
• Total balance acknowledged by the client
• New due dates and a schedule
• Interest or late charges (if allowed and consistent with your contract and state law)
• Acceleration (if they miss one payment, the full balance becomes due)
• A defined method of payment (ACH, wire, check) and where it’s sent
• A narrow dispute statement (they can’t later claim they never owed it)

Be careful with partial payments. If a client sends a small payment with a memo like “payment in full,” don’t ignore it. Some states treat that language as an attempt at accord and satisfaction. Talk with a business dispute lawyer before depositing any check that comes with conditions.

Settlements often include a release, which can be helpful, but it cuts both ways. If you release too broadly, you may waive claims you didn’t realize you had (like attorney fees, interest, or costs to unwind work). Have a lawyer draft or review any settlement paperwork.

Decide whether to pause work or terminate: avoid breach and protect your team

Pausing work feels like common sense, but it can backfire if the contract says you must keep performing during a dispute, or if the services are tied to regulatory duties (common in accounting and certain IT environments).

Before you stop anything, decide based on facts:

• Current exposure: How much unpaid work is already out the door?
• Mission-critical impact: Would stopping cause data loss, downtime, or missed filings?
• Reputational risk: Will the client blame you publicly for their failure to pay?
• Contract rights: Does the agreement allow suspension for nonpayment, and with what notice?

If you do pause or terminate, do it cleanly:

• Provide notice exactly as required.
• Return client property as required (files, credentials, records).
• Protect confidentiality, and document what you delivered back.
• If you manage systems or data, plan a secure offboarding. Confirm who will take over, and when access will be transferred.

This is also a team protection step. Your staff shouldn’t be pulled into emotional client calls. Assign one point of contact and keep messages consistent.

Litigation Readiness: Build a Strong Case While Staying Business-Minded

You don’t have to rush into court to prepare for court. The best time to get organized is while you still have normal access to records, tools, and team members who worked the account.

Disputes usually turn on four things: evidence, damages, credibility, and collectability. You can improve all four before filing anything.

Preserve evidence and track damages: the simple record-keeping that wins disputes

If the amount is meaningful, treat it like a “light” litigation hold. That means: don’t delete messages, don’t wipe devices, don’t clean up project boards.

Preserve:

• Emails (including attachments and header info if possible)
• Text messages and messaging apps used for business (Slack, Teams)
• Project files and version history (Drive, SharePoint, Notion, Jira)
• Ticket history, change logs, and access logs (for IT services)
• Accounting records and payment history
• Notes of calls, with date and attendees

Track damages in a simple spreadsheet:

• Unpaid invoice amount(s)
• Contract interest and late fees (if clearly allowed)
• Costs you had to pay to third parties for the client’s project (if recoverable)
• Chargebacks or reversals tied to their account
• Time spent redoing work only if your contract or state law supports it (often it does not)

Also watch tone. Assume a judge may read your emails someday. Keep them short, factual, and calm. No sarcasm. No threats. No “you’re a fraud” language.

Pick the best path: demand letter, small claims, arbitration, or full lawsuit

The “right” forum depends on the contract and the business goal (speed, cost, confidentiality, precedent). A business litigation attorney can map likely timelines and costs in your state and help you choose a path that matches the dollars at stake.

Here’s a practical decision guide:

Check the contract for venue and choice of law clauses. If it requires arbitration, filing a court case may get dismissed or stayed, which wastes time and fees.



If you’re in PA, NJ, or NY and want support across demand, negotiation, and litigation strategy, start with comprehensive business legal services.

Think about collectability: liens, judgments, and what assets can be reached

Getting a judgment and getting paid are not the same thing. Before you spend heavily, consider whether the client can pay, and whether you can reach assets.

Basic collection tools after a judgment may include:

• Bank garnishment (rules vary by state)
• Property liens (often on real estate, sometimes other property)
• Post-judgment discovery (forcing answers about accounts and assets)
• Writs of execution (depending on jurisdiction)

Some industries have special lien rights (for example, construction-related mechanic’s liens), but those are state-specific and deadline-driven. Don’t assume you have lien rights without legal advice.

Practical collectability checks:

• Look for a personal guaranty in your contract package.
• Review public filings for lawsuits, bankruptcies, or dissolved entities.
• Check whether the entity is still active and in good standing.
• Consider whether the client has a real operating footprint (employees, offices, active projects).

If the facts point toward litigation, having a direct point of contact on counsel helps. For support that includes commercial litigation experience, you can also book a discovery call.

Prevention After You Get Through It: Contract and Process Fixes That Stop Repeat Nonpayment

Once you’re past the immediate crisis, fix the system. Most repeat nonpayment comes from two gaps: unclear scope and weak payment enforcement.

Tighten your contract and billing: retainers, milestones, late-fee language, and clear acceptance

For professional service companies, a few upgrades reduce disputes fast:

• Upfront retainer (applied to the last invoice or first month)
• Milestone billing tied to deliverables, not time alone
• Clear scope and change-order rules (what counts as out of scope)
• Acceptance criteria (what “approved” means, and how long they have to object)
• Automatic late fees and interest that match state law and are clearly stated
• Right to suspend work for nonpayment with a short notice period
• Attorney-fee clause for enforcement (when appropriate)
• Dispute steps that require executive escalation before litigation

Clear acceptance terms stop the “we’re not happy, so we’re not paying” move. If the client had a set window to raise issues and didn’t, the dispute becomes simpler.

Client screening and early warning signs: spot trouble before the invoice goes overdue

Nonpayment rarely arrives without hints. Teach your team to notice patterns early.

Common warning signs:

• Slow approvals and constant last-minute changes
• Scope creep paired with resistance to change orders
• Requests to delay invoices “just this once”
• Leadership turnover, especially finance or operations
• Vague comments about “cash flow” or “funding timing”

Set internal triggers so you act before the balance piles up. Many firms use a simple cadence: follow up at 7, 14, and 30 days past due, and escalate in writing at each step.

If you want ongoing support without hiring in-house counsel, a fractional general counsel model can help you review contracts, billing practices, and dispute patterns before they turn into lawsuits.

Conclusion

When a key client stops paying, you don’t need to panic.

You need a plan that protects your company and keeps your options open:

• Confirm facts fast, and build a clean timeline.
• Send a clear demand with proof and proper notice.
• Negotiate in writing, and don’t sign away rights by accident.
• Get litigation-ready, and weigh collectability before spending heavily.
• Fix your contract and billing process so it’s harder to happen again.

If you want help from a business dispute lawyer, business dispute attorney, or business litigation attorney, contact Company Counsel LLC and schedule a discovery call to map your next steps and protect your cash flow with clear legal strategy.