Agency Subcontractor Nonpayment Demand Letters
Recovering payment as a freelancer, subcontractor, or white-label partner when agencies, platforms, or prime contractors fail to pay
When you work as a subcontractor, freelancer, or white-label partner for an agency or prime contractor, nonpayment disputes create unique leverage challenges. The agency often claims it can’t pay you because its client hasn’t paid. This guide shows you how to recover payment regardless of upstream payment delays.
In most subcontractor and agency relationships, the prime contractor (agency) is obligated to pay you regardless of whether it has been paid by its client. Unless your contract explicitly makes payment contingent on the prime receiving payment (“pay-when-paid” or “pay-if-paid” clauses), the agency’s cash flow problems are not your legal concern.
Exception: “Pay-if-paid” clauses (which make payment contingent on upstream payment) are heavily disfavored and often unenforceable in many jurisdictions unless drafted with extreme clarity.
- Contract Chain Diagram: Clearly map the relationship: End Client → Prime/Agency → You (Subcontractor). This establishes that you have no direct relationship with the end client and must rely on the agency.
- Your Agreement with the Agency: Summarize your subcontract terms, including scope, deliverables, payment terms, and critically, whether payment is contingent on upstream payment.
- Performance Summary: Detail what you delivered, when, and evidence of agency acceptance (forwarding to client, deployment, “looks good” emails).
- Agency’s Payment Obligation: State clearly that the agency owes you regardless of its client payment status, unless the contract has an enforceable pay-if-paid clause.
- Invoice History: List all unpaid invoices, due dates, amounts, and any partial payments received.
- Upstream Payment Excuse: Address the agency’s “our client hasn’t paid” defense directly—explain that this is not a valid reason to withhold payment unless contract explicitly allows it.
- Non-Circumvention Notice: If applicable, note that you have not and will not contact the end client directly, and you expect the agency to honor its contractual obligations.
- Platform Reputational Leverage: For Upwork/Fiverr disputes, note that nonpayment may result in negative reviews, platform reporting, and damage to agency’s freelancer reputation.
- Demand and Deadline: Specify exact amount due, payment method, and 10-15 day deadline.
- Next Steps: Litigation, arbitration, small claims, and (if applicable) reporting to platform or business bureau.
Pay-when-paid: A “timing” clause—payment may be delayed, but the agency still owes you. Generally enforceable.
Pay-if-paid: A “condition precedent” clause—the agency only owes you if it gets paid. Courts require extreme clarity in language and often strike these down as unconscionable. In California and several other states, these clauses are disfavored or unenforceable outright.
Your Strategy: In your demand letter, argue that ambiguous payment language should be read as “pay-when-paid,” not “pay-if-paid.”
Many subcontractor agreements include “non-circumvention” or “no direct contact” clauses. If the agency is slow-paying you, it may be hoping you’ll reach out to the end client directly—a violation that gives the agency grounds to withhold payment or terminate.
Strategy: In your demand letter, explicitly state you have not and will not contact the end client, reinforcing that the agency must fulfill its contractual duties. This removes one of their potential defenses.
Freelance platforms have built-in dispute resolution, but often favor the paying party (the agency). After exhausting platform processes:
- Emphasize platform policies: Note that nonpayment violates platform terms and may result in account suspension or negative feedback.
- Small claims threshold: Many platform disputes fall under small claims limits ($5k–$10k depending on state), making formal litigation accessible and fast.
- Escrow failures: If the agency failed to fund escrow or improperly released funds, this may be a platform violation separate from contract breach.
As an agency or prime contractor, receiving a nonpayment demand from your subcontractor can be stressful—especially if your own client hasn’t paid you yet. Here’s how to assess your exposure and respond strategically.
- What does your subcontract say about payment timing? Is payment explicitly contingent on upstream payment, or are you unconditionally obligated?
- Did the subcontractor perform as agreed? Were deliverables timely, within scope, and accepted by you or your client?
- Have you been paid by your client? If not, is your client disputing quality, or are they just slow?
- Do you have insurance or indemnity coverage? Some professional liability or E&O policies may cover subcontractor payment disputes.
- What is your reputational risk? On platforms like Upwork, negative reviews or disputes can significantly damage your business.
- Ignore the demand: Silence often leads to small claims litigation or platform escalation, both of which are costly and damaging.
- Blame the end client without contractual basis: “Our client hasn’t paid us” is not a defense unless your contract explicitly makes payment contingent.
- Threaten or retaliate: Threats to give negative reviews, withhold future work, or report non-existent contract violations can backfire and expose you to counterclaims.
- Delay without communication: Even if you can’t pay immediately, responding professionally and proposing a timeline buys goodwill and often avoids litigation.
If you’re stuck between a demanding subcontractor and a slow-paying client, prioritize your upstream collection efforts. Send your own demand letter to the client, consider arbitration or litigation, and document your good-faith efforts. This may give you negotiating leverage with the subcontractor.
Agency-subcontractor nonpayment disputes typically settle quickly once both sides understand their exposure. Here’s what to expect:
- No valid pay-if-paid clause, clear performance: 85-100% recovery within 30-60 days, often with payment plan.
- Valid pay-when-paid clause, agency actively collecting upstream: 70-90% recovery, sometimes delayed 60-120 days pending upstream resolution.
- Quality disputes: 50-75% recovery depending on severity and documentation.
- Platform disputes (Upwork, Fiverr): 60-90% recovery; agencies often settle to avoid negative reviews and platform penalties.
Most subcontractor nonpayment claims fall within small claims limits ($5k-$10k depending on state). Benefits:
- Speed: Hearing within 30-90 days of filing in most jurisdictions.
- Low cost: No attorney required; filing fees typically $50-$200.
- Settlement pressure: Many agencies settle once they receive small claims summons to avoid court appearance and judgment.
I represent both subcontractors seeking to recover payment and agencies responding to subcontractor demands. My approach focuses on efficient resolution and minimizing business disruption.
Contract Review: I analyze your subcontract to determine whether payment is unconditional or contingent on upstream payment, and I evaluate the enforceability of any pay-if-paid language.
Demand Letter Drafting: I prepare a comprehensive demand letter that addresses the agency’s likely defenses (client nonpayment, quality issues) and leverages all available pressure points (platform policies, small claims, attorney’s fees).
Small Claims Representation: For claims within small claims limits, I assist with filing and case preparation. In some jurisdictions I can appear with you; in others I prepare you for self-representation.
Exposure Assessment: I review your subcontract and the subcontractor’s performance to determine your actual liability and realistic settlement range.
Response Drafting: I prepare a professional response that protects your interests without making unnecessary admissions or escalating conflict.
Upstream Collection Strategy: If your nonpayment is due to your client’s nonpayment, I advise on parallel collection efforts against your client to resolve the full payment chain.
Whether you’re a freelancer seeking to recover payment from an agency or an agency responding to a subcontractor demand, I can help you understand your rights and develop an efficient resolution strategy.
Use the Calendly link below or email me directly at owner@terms.law.
Schedule Strategy CallGenerally, no—unless your subcontract contains a clear “pay-if-paid” clause. Most contracts either say nothing about upstream payment (meaning the agency owes you unconditionally) or have “pay-when-paid” language (which allows delay but not complete non-payment). Courts heavily disfavor pay-if-paid clauses and require extreme clarity to enforce them.
No, unless you have clear permission from the agency. Most subcontracts include non-circumvention or non-solicitation clauses that prohibit direct contact. Violating these can give the agency grounds to withhold payment or terminate. Keep all collection efforts focused on the agency.
Start with the platform’s dispute resolution process. If that doesn’t resolve it, you can send a formal demand letter and, if necessary, file in small claims court. Platforms dislike agencies that abuse escrow, and negative reviews/disputes can pressure settlement.
Subcontractor demand letter services typically range from $1,200-$2,500 depending on contract complexity and the number of unpaid invoices. This includes contract review, demand letter drafting, and limited follow-up negotiation.
If your subcontract doesn’t have a valid pay-if-paid clause and the subcontractor performed properly, yes—you should pay to avoid escalating legal exposure. Consider this a cost of doing business and focus your collection efforts on your client. Delaying only adds interest, potential attorney’s fees, and reputational damage.