Can you legally hold a customers parts until they pay?

jackal · Sep 19, 2009

I have a customer that is paying slower and slower. They used to pay the amount right at 65 days ( I had them on 60 days pay). They are getting slower & slower. They told me that there was a check in the mail last Thursday, and I still haven't received it. Usually, when they send it, I get it the next day.

I have a special aerator motor assembly right now and they are needing it for their customer, but I am going to tell them I have to get a check when they pick it up. I don't want the parts, just the money.

The check needs to be for the Aerator and any past 60 day bills.
Do I need to contact the prosecuting attorney or just a regular attorney. It might be time to file a lien. ( I want to know what is next and be ready if I have to).
This is my first year in business and I can't let them shut me down. (Drag me down with them).

I let them go for a while and they would pay $1000 to $1500 at a time. Now they owe me a couple thousand $$$.

I know the laws are different in each state, but a little advice on playing the game would help. It would be nice to keep them as a customer, but hell I can't work for free and a company that has been in business for over 60 years ought to have it together. It is starting to get me pissed. :angry:

Give me some of your experience/solutions that have worked for you in the past. It would be nice if it didn't get ugly, but it might be too late.

Thanks, as always,

JAckal

Don_Hartman · Sep 19, 2009

Why would holding the parts be any diffrent than them holding your payment?

Don

HuFlungDung · Sep 19, 2009

Blood. Stone. Waste of time and (more) money.

That's what comes to my mind, anyways, unless you have reason to suspect they have the ability to pay, but are just withholding.

Implement a new policy for your business: a credit application. Maybe get a lawyer to help you craft a good credit application that has some teeth in it. Get it signed by the CFO of the applicant firm. Ask for a recent copy of their balance sheet and profit and loss statement along with the credit app. Will you get it? I dunno, but you can always ask

Maybe they'll just pay rather than have you looking at their financial data, you hope.

Newman109 · Sep 19, 2009

Don_Hartman said:
Why would holding the parts be any diffrent than them holding your payment?

Don

Because he has already made the part. If they withhold payment and take the parts, they are being unjustly enriched. He has performed and they have not. That's a large difference.

Steve Seebold · Sep 19, 2009

Make a notation on your invoices that you will chage 1 1/2 percent interest on amounts $1,000.00 or less, and 1 percent on amounts over $1001.00. That's a legal rate in most states.

When a invoice reaches 60 days old, I would take their work off the machine until their account is paid currant. If they want theit parts, they have to pay their bills. There is plenty of free work out there if you need some.

I made a deal with the bank once. They don't make parts and I don't loan money. By you letting your customer go more than 60 days, you are effectively loaning your customer your money.

I had a customer once who stated term of net 55 days, and like clockwork, at 57 days I had their money. That I could live with. My terms with the rest of my customers was 3%10 net 30. Most of them took the 3%.

Mud · Sep 19, 2009

Yes. They are still your parts and they cannot force you to hand them over. They can try to coerce you with threats of voiding the contract (or whatever agreement you have) but you are well within your rights to keep them as long as you like. Once you hand them over, they have all the power.

If you think they are close to closing their doors, hang on to the job until they pay. If you think they will remain solvent and want to meet them part way in the interest of helping them and think it will result in more work, it's not uncommon to ask for full payment of the current job COD plus half of the balance due on the old invoices.

machine1medic · Sep 19, 2009

Don_Hartman said:
Why would holding the parts be any diffrent than them holding your payment?

Don

You can't possibly be serious! :skep:

My various employers have had to hold work hostage,
sometimes even "as an expectation".
There are just plain bad players in the game.
Once you hook one, you play ruff, till you are rid of him.

This type of client starts out "by the rules".....
slowly works you around....as long as you tollerate it.
When you ditch him he moves to the next victim.

Here is a beautifull local account of justice!!
A nameless medium manufacturer years back had allready
bankrupt several small tool-shops.
The next one in line had oversize nads. Backed his flatbed up to the dock,
eyed a niaeve youngster, (and a large expensive Tool).
Acted to be in a panic, saying "that's got to be on my truck for
emergency modification!!"

Once loaded he pulled around in front, in full veiw.....
went in and calmly said we settle, NOW in FULL.....
or you can kiss that tool good Buy.

Ah justice , sweet justice.

M1M

whitis · Sep 19, 2009

IANAL.

You should already have a Mechanic's Lien:
http://en.wikipedia.org/wiki/Mechanic's_lien

Instead of quoting $1000, tell them the price is $1111.11 with "10% 30 day, NET 60" terms and 3% interest per month, or portion thereof, after 60 days. Spell it out that they pay just $1000, if, and only if, you receive payment within 30 days. Just divide your price by 0.9. They aren't past due until 60 days this way, but they have an incentive to pay promptly.

I don't think you are limited to 1-1/2% any more, usury laws went away many years ago so credit card companies could charge people 30% annual rates. I don't even think you were before: businesses contracts are different than individual ones. I charged 3% before the usury laws were repealed. And you certainly aren't limited with respect to the discounts you can offer.

moonlight machine · Sep 19, 2009

I get paid cod on everything. I do a lot of work for one customer that pays me weekly when a job stretches out. I am small enough that I can't be the bank for anyone.

The real Leigh · Sep 20, 2009

Put 'em on COD

They're running their business on your money. :eek:

You're not a bank.

If they go elsewhere, they'll probably save you money.

The difference between a business and a hobby is getting paid.

- Leigh

BadBeta · Sep 20, 2009

Unless your contract states consise payment terms, or there are some deadline for delivery which can haunt you, then I say you can and should withhold delivery.

If you are contract bound then make the delivery, get the payment, and change the contract before the next order. And change it to COD - tell them straight up the reason is their failure to comply with earlier arrangements.

That said have you tried talking to them about it? Ask them to drop the excuses and give you the real story. In my book, at least on one level, there is a difference between someone trying hard but being unable, and someone who doesn't give a damn.

rockfish · Sep 20, 2009

If you read further in this forum, you will find a few posts about my predicament with a non-paying customer. If your customer is getting slower and slower paying, cut them off immediately. Do not offer them credit, because you will surely lose in the end. There is simply very little you can ever do to get your money back once it's gone. I know.

As far as holding parts ransom ............ if they are NOT customer supplied, you have every right to hold them. When pouring over the legalese that the receiver's attorney sent me after my customer went into receivership, I found out that if you are doing a secondary operation, such as a machining operation, plating, black oxiding, whatever, you CANNOT legally hold their parts. Even if you have finished your work on them and will not get paid. They can legally bring a sheriff and demand the parts.

I personally know a company that made a bunch of parts disappear off his shop floor and hid them because of non-payment. He told them that he had no record of ever receiving the parts, but if he received a check in full, he would double check his records and perhaps they would be found.

Frank

www.randolphmach.com

MarkJB · Sep 20, 2009

You will lose!
I did about 10 years ago to the tune of 30k,allot of money for a one man shop. It's always the same, we can't pay for the past work if you don't give us these parts so we can bill our customer for the new job.
Pick a number that your willing to lose and stop everything until it's paid, stand by your guns and don't accept partials. If they still want to use you explain it's c.o.d. from then on.
You might as well get it straight in your head now that you will lose some money.
It will sting a bit at first but it's much better than letting them break it off.
The good news is that there are customers who will appreciate you but you won't find them until you dump the losers.

jackal · Sep 20, 2009

Frank ,

That's what has me worried.

As far as holding parts ransom ............ if they are NOT customer supplied, you have every right to hold them. When pouring over the legalese that the receiver's attorney sent me after my customer went into receivership, I found out that if you are doing a secondary operation, such as a machining operation, plating, black oxiding, whatever, you CANNOT legally hold their parts. Even if you have finished your work on them and will not get paid. They can legally bring a sheriff and demand the parts.

These are parts to an electric motor pump. They sent them in to have fixed. I am not finished with them totally. If they want them, ( demand with a sheriff) I can mess up what has been fixed so far. I have been putting them off for a week now, on this particular job.

Thanks for the advice and keep the comments coming.

JAckal

WA Toolman · Sep 20, 2009

Over the years in this business I've wound up doing some radical things to collect money. One time I hooked a chain around a customers machine (with the die I had built in it) and then went into the office with a "Now let's talk, you @#^%!" It worked. Had another one wave a gun around, next time I had my dark heavily bearded employee sit in the truck with a very visible shotgun between his knees. They suddenly found the money. A couple of different times I've looked up a guys house using Reverse Directory and showed up on his doorstep on a Sunday morning.
Many of the collection methods I have used were on shaky legal grounds, in some cases physically dangerous, and generally used as a last resort. However, when the person is a professional deadbeat, and you know he's stroking you, then it's time to give them a surprise. Remember that's probably going to be the last time you see that customer, so make it good, and really make an impression on them. Who knows, you just may make it easier on the next guy these jokers get their hooks into.
Now that I'm retired, I can laugh at this crap, but it's surprising I'm here to tell about it.

BadBeta · Sep 20, 2009

Do they know you have finished the parts? If not you can say that you have prioritized paying customers, but that you can have the parts ready for them real soon after any outstanding bills are paid in full.

If they wants the parts back (unrepaired as far as they know) without paying the current outstanding bills in full, then its time to cut your losses.

I don't know in the US but over here we would be in our rights to hold back and eventually sell any items to cover previous debt. (You would be better off with some proper documentation for the unpaid work done and that they have accepted the delivery and price though - thus admiting the debt.

jim rozen · Sep 20, 2009

Can you un-repair the parts?

Guy who re-built my front porch, was very accomodating about getting
payment. I asked him about that, he said he's almost never had somebody
try to stiff him for work completed.

"And, the few that did, found out that the stuff comes down, much faster
than it goes up. They pay up right fast when that starts happening."

Thinking back, I realized he had dismantled the entire old front porch with
nothing but a sawzall and a small pinch bar, in much less than an 8 hour day.

Jim

dkmc · Sep 20, 2009

What ever you do.....the outcome will probably be better if you keep emotions and anger out of the discussion.

Play it cool....and stand your ground till they produce a check.

Dave K · Sep 20, 2009

I'm not seeing you mentioning this, but have you tried just having a talk with them? It might be your cheapest way, if they are decent people. Try talking first to the actual buyer you're dealing with. He would probably have the best chance of getting somewhere with their payroll department than you would yourself.

I would sit down with them and simply explain how much strain this is putting on you as a small business. Explain to them that if you can't receive monies on time, you may not be around to do anything for them in the future.

Going the route of an attorney, may be just as expensive as losing the money.

I feel the same way you do about it. A company that's been around for a long time should have their stuff together. The flip side of that is, a company that's been around a long time, easily forgets what it's like to be a small company.

Good luck.

viper · Sep 20, 2009

I would firmly agree that using integrity first should be the primary method. Talk with them and explain that they are not holding up their end of the contract and it is hurting your business. Many times a good business will understand this or draft new terms that you both can live with. If a business is unethical, you need to get out fast. Those are the types that leave you holding a $30K bill! We don't do business with those types.

I personally had one customer on a NET 30 that was getting slow. I did not withhold parts, I just called and talked with the CEO and explained my situation that I cannot be the banker and the terms are NET30, not NET60. He understood and wanting to maintain a good relationship so they got it worked out.

Resulting to packing a piece to go get ur money is asking for disaster and does not say much for you or your business. Know your customer and what they do "before" you agree to carry them. I literally have to tell many customers that I will ONLY do a COD because I am not comfortable with a NET30. Every other industry expects COD, why can't I?? It is only fair to expect payment for a service when completed.. Does your car mechanic give you a NET30 on repairs???

Can you legally hold a customers parts until they pay?

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