California Unpaid Invoice Collection Demand Letters

Commercial Code | Civil Code 3289 Interest | Breach of Contract | Small Claims Up to $12,500

California Law for Collecting Unpaid Invoices
Core Legal Framework: When a customer or client fails to pay an invoice in California, you have multiple legal remedies under the California Commercial Code, Civil Code provisions for breach of contract, and statutory interest under Civil Code Section 3289. Understanding these laws helps you write effective demand letters and recover what you are owed, including interest and reasonable collection costs.
California Commercial Code - Sale of Goods

The California Commercial Code (based on the Uniform Commercial Code) governs transactions involving the sale of goods:

Code Section What It Covers
Commercial Code 2201 Statute of Frauds - contracts for goods over $500 must be in writing (with exceptions)
Commercial Code 2301-2310 Seller's obligation to tender delivery; buyer's obligation to accept and pay
Commercial Code 2507 Tender of delivery is a condition to buyer's duty to pay
Commercial Code 2607 Buyer must pay at the contract rate for any goods accepted
Commercial Code 2709 Seller's right to recover the price of accepted goods
Commercial Code 2710 Seller's incidental damages (storage, resale costs, etc.)
Breach of Contract Under Civil Code

For service contracts and other non-goods transactions, California Civil Code breach of contract principles apply:

  • Express Contract: When parties have a written or verbal agreement with defined payment terms
  • Implied Contract: When circumstances show the parties intended to create an obligation (e.g., services rendered with expectation of payment)
  • Quantum Meruit: Recovery for reasonable value of services when no express contract exists
  • Account Stated: When debtor acknowledges a specific amount is owed after receiving invoices
Elements of Breach of Contract: To recover for breach of contract in California, you must prove: (1) existence of a contract, (2) your performance or excuse for nonperformance, (3) defendant's breach, and (4) resulting damages. An unpaid invoice typically satisfies all elements when you delivered goods or services as agreed.
Interest Rates Under Civil Code Section 3289

California law entitles you to collect interest on unpaid amounts:

Type of Contract Interest Rate Legal Authority
Contract specifies interest rate The rate stated in the contract (up to usury limits) Civil Code 3289(a)
Contract with no interest rate specified 10% per annum Civil Code 3289(b)
No written contract (implied) 7% per annum (legal rate) California Constitution Art. XV, Sec. 1
Prejudgment interest on damages 10% per annum Civil Code 3287, 3289
Calculating Interest: Interest accrues from the date payment was due (the invoice due date or, if none stated, a reasonable time after delivery). Calculate daily interest as: (Principal x Annual Rate) / 365. For example, $5,000 at 10% = $500/year or $1.37/day.
Reasonable Collection Costs

Under California law, you may be entitled to recover collection costs in certain situations:

  • Contractual Provision: If your contract includes a clause allowing recovery of collection costs and attorney fees, you can recover these amounts (Civil Code 1717)
  • Civil Code 1717.5: In actions on contracts with a principal amount under $5,000, the prevailing party may recover reasonable attorney fees
  • NSF Checks: For bounced checks, Civil Code 1719 allows service charges plus treble damages up to $1,500
  • Commercial Code 2710: Sellers may recover incidental damages including reasonable charges for storage, shipping, and collection efforts
Statute of Limitations

Act within these time limits or lose your right to sue:

Type of Claim Time Limit Legal Authority
Written contract 4 years from breach Code of Civil Procedure 337
Oral contract 2 years from breach Code of Civil Procedure 339
Open book account 4 years from last entry Code of Civil Procedure 337
Account stated 4 years from statement Code of Civil Procedure 337
Sale of goods (Commercial Code) 4 years from breach Commercial Code 2725
Do Not Wait: The statute of limitations begins running from the date payment was due, not the date you discovered the non-payment. If your invoice was due January 1, 2021, and you have a written contract, you must file suit by January 1, 2025 at the latest. Send demand letters promptly to preserve your rights.
Prompt Payment Act (Government Contracts)

If you are a contractor or subcontractor on public works or government contracts:

  • Public Contract Code 7107: Progress payments must be made within 30 days of billing; retention within 60 days of completion
  • Civil Code 3260: Interest at 2% per month on wrongfully withheld retention
  • Business and Professions Code 7108.5: Prime contractors must pay subcontractors within 7 days of receiving payment
Common Invoice Collection Issues
1. Late Payment / Non-Payment
Most Common Issue: The client simply does not pay by the due date and may be ignoring your invoice entirely. This can happen for many reasons - cash flow problems, disorganization, or intentional avoidance.
  • Invoice sent but no payment received by due date
  • Client not responding to emails, calls, or follow-up invoices
  • Client claims they "never received" the invoice
  • Client promises payment "next week" repeatedly but never pays
  • Client's business appears to be operating normally but avoids you
Warning Signs of Non-Payment: Watch for: delays in returning calls/emails, vague promises without specific dates, requests to postpone payment discussions, or the client avoiding meetings. Early intervention with a formal demand letter often produces better results than passive waiting.
2. Partial Payment
  • Unauthorized deductions: Client pays less than invoiced with no explanation
  • "Payment on account": Client sends partial payment claiming it is all they can afford now
  • Withholding retention: Client withholds a percentage beyond what is contractually allowed
  • Offset claims: Client deducts amounts for alleged defects or problems without prior notice
  • Short-paying: Client consistently pays 90-95% of invoices hoping you will not notice
Accepting Partial Payment: Be careful when accepting partial payments. Document whether you are accepting it as partial satisfaction or in full satisfaction of the debt. Under Civil Code 1526, if you cash a check marked "payment in full" when a genuine dispute exists, you may have accepted that amount as full payment (accord and satisfaction). Write "accepted as partial payment only" on such checks.
3. Disputed Invoices

Sometimes clients refuse to pay because they claim a dispute:

Type of Dispute How to Address
Quality of goods/services Request specific written complaints; offer to cure if legitimate
Incorrect pricing Provide copy of contract, quote, or purchase order showing agreed price
Quantity discrepancy Provide delivery receipts, packing slips, or signed acknowledgments
Work not completed Document completion with photos, reports, sign-offs
Unauthorized work Provide change orders, emails authorizing additional work
Already paid Request proof of payment (check number, date, bank records)
Handling Disputes Professionally: If a client raises a legitimate dispute, address it directly. Offer to meet, inspect, or remediate genuine issues. Document your efforts. A good-faith attempt to resolve disputes strengthens your position if you later sue. However, do not let vague or baseless disputes delay payment - demand specific written objections.
4. Bounced Checks (NSF)
  • First check bounces: Client's payment is returned for insufficient funds
  • Repeated NSF: Replacement check also bounces
  • Stop payment: Client intentionally stops payment after you deposited check
  • Closed account: Client wrote check on a closed or fictitious account
California Civil Code 1719: If you receive a bad check, you can recover:
  • The amount of the check
  • Service charge (up to $25 for first check, $35 for subsequent)
  • Treble damages: three times the check amount, up to $1,500 minimum or amount of check (whichever is greater)
  • You must first send a written demand by certified mail and wait 30 days
Writing a bad check with intent to defraud is also a crime under Penal Code 476a.
5. Payment Plan Defaults
  • Client agreed to payment plan but misses installment payments
  • Client makes one or two payments then stops
  • Client renegotiates plan repeatedly without catching up
  • Payment plan has no acceleration clause, so you must wait for each missed payment
Payment Plan Best Practices: Always put payment plans in writing. Include: (1) total amount owed, (2) payment amounts and due dates, (3) interest on remaining balance, (4) acceleration clause (entire balance due if payment missed), (5) waiver of defenses (client acknowledges debt is valid), (6) attorney fees clause. Have the client sign and retain a copy.
6. Client Business Closure / Insolvency
  • Client's business has closed or relocated with no forwarding information
  • Client has filed bankruptcy (triggers automatic stay - consult attorney)
  • Client is insolvent but has not filed bankruptcy
  • Client is an LLC or corporation with no assets (judgment-proof)
  • Individual owner may have personal liability (piercing the corporate veil)
Bankruptcy Warning: If you learn a client has filed bankruptcy, STOP all collection efforts immediately. The automatic stay under 11 U.S.C. 362 prohibits any collection activity. File a proof of claim in the bankruptcy case. Continuing to collect after bankruptcy filing can result in sanctions against you.
7. "The Check Is in the Mail"
  • Client repeatedly claims payment was sent but you never receive it
  • Client claims mail was lost or delayed
  • Client provides fake tracking numbers or check numbers
  • Weeks pass with no actual payment received
Response Strategy: After two claims of lost payments, demand wire transfer, certified check, or ACH payment. Set a firm deadline. State that failure to pay by that date will result in legal action. Follow through - clients who repeatedly claim lost payments are usually lying.
How to Write an Effective Invoice Demand Letter
Step 1: Gather Your Documentation

Before writing your demand letter, assemble all evidence of the debt:

  • Contract or Agreement: Written contract, proposal, work order, or purchase order
  • Invoices: All invoices sent, with dates and amounts
  • Delivery Proof: Shipping receipts, signed delivery confirmations, or service completion records
  • Communications: Emails, texts, and letters discussing the work and payment
  • Payment History: Record of any partial payments received
  • Follow-Up Attempts: Documentation of your prior attempts to collect
  • Interest Calculation: Calculate interest owed under the contract or Civil Code 3289
Step 2: Calculate the Total Amount Owed
Component How to Calculate
Principal (Invoice Amount) Original invoiced amount(s) remaining unpaid
Interest Contract rate, or 10% per annum (Civil Code 3289(b)), from due date to present
Late Fees Only if specified in your contract (must be reasonable)
NSF Fees (if applicable) Service charge plus treble damages under Civil Code 1719
Collection Costs If contract allows, include reasonable costs incurred
Total Demand Sum of all above amounts
Interest Calculation Example: Invoice of $5,000 due March 1, 2024. Today is December 1, 2024 (275 days past due). At 10% per annum: $5,000 x 0.10 x (275/365) = $376.71 in interest. Total demand: $5,376.71.
Step 3: Tone and Language
Professional but Firm: Your demand letter should be businesslike and professional. Avoid emotional language, threats of violence, or defamatory statements. However, be direct about consequences - clearly state that you will file a lawsuit if payment is not received. Firmness is not rudeness.

Effective Tone Guidelines:

  • Be direct: State clearly that you are demanding payment, not asking nicely
  • Be specific: Include exact amounts, invoice numbers, and due dates
  • Be factual: Describe the transaction and debt without editorializing
  • Be legal: Cite applicable California law (shows you know your rights)
  • Be consequential: State exactly what will happen if payment is not made
  • Be deadline-driven: Give a specific date by which payment must be received
Step 4: Essential Components of Your Letter
Component What to Include
Header Your business name, address, phone, email; date; client's name and address
Subject Line "DEMAND FOR PAYMENT" or "Final Demand Before Legal Action"
Introduction Identify the business relationship and invoices at issue
Statement of Debt List invoice numbers, dates, amounts, services/goods provided
Payment History Acknowledge any partial payments; show remaining balance
Interest Calculation Show how interest was calculated under Civil Code 3289
Total Demand Principal + interest + any permitted fees = total due
Payment Deadline Specific date (typically 10-14 days from receipt)
Payment Instructions How to pay (check, wire, ACH) and where to send payment
Consequences State you will file lawsuit, report to credit bureaus, or hire collection agency
Legal Citation Reference Civil Code 3289 (interest) and breach of contract remedies
Step 5: Setting the Deadline
  • Standard deadline: 10-14 calendar days from date of letter or receipt
  • Urgent situations: 7 days may be appropriate for long-overdue debts
  • Large amounts: Consider 21-30 days to allow time for payment arrangement
  • Use specific date: "Payment must be received by January 15, 2025" is better than "within 14 days"
Step 6: Delivery Method
  • Certified Mail, Return Receipt Requested: Provides proof of delivery
  • Email + Certified Mail: Send both for immediate notice and legal documentation
  • FedEx/UPS with signature: Alternative to certified mail with tracking
  • Keep copies: Retain copies of the letter and proof of mailing/delivery
Follow Through: A demand letter is only effective if you follow through on stated consequences. If the deadline passes without payment, take the next step immediately - file in small claims court, send to collections, or consult an attorney for civil litigation. Clients who ignore demand letters often pay quickly once served with a lawsuit.
Step 7: What NOT to Include
  • Threats of criminal prosecution: Do not threaten to "press charges" for non-payment (it is a civil matter)
  • Defamatory statements: Do not call the client a "thief" or "fraud" unless you can prove it
  • Threats to harm reputation: Be careful about threats to post negative reviews (may be extortion)
  • False legal claims: Do not threaten actions you cannot or will not take
  • Harassment: Do not send excessive letters, call repeatedly, or contact the client's family
Create Your Demand Letter
Interactive Generator: Fill in the form below and watch your letter update in real-time. Click on any highlighted text in the preview to edit it directly. All California-specific legal citations are automatically included.
Your Information
Recipient (Debtor)
Invoice Details
10% per year under Civil Code 3289
Demand Terms
10-14 days is typical for invoice collection
Live Preview
After generating your letter:
  • Review all highlighted fields and ensure accuracy
  • Calculate interest: Principal x 10% / 365 x Days Overdue
  • Send via Certified Mail, Return Receipt Requested for proof of delivery
  • Keep a copy of the letter and mailing receipt for your records
Enforcement Options and Remedies
1. California Small Claims Court
Best Option for Many Businesses: California Small Claims Court allows you to sue for up to $12,500 (individuals) or $6,250 (businesses/corporations) without an attorney. The process is relatively fast, inexpensive, and designed for exactly these types of disputes.

Small Claims Court Details:

Factor Details
Maximum claim (individual) $12,500
Maximum claim (corporation/LLC) $6,250 (can file max 2 claims over $2,500 per year)
Filing fee $30-$75 depending on claim amount
Where to file County where defendant resides/does business, or where contract was performed
Attorney allowed? No (parties represent themselves)
Typical timeline 30-70 days from filing to hearing
What you can recover Principal, interest, and filing costs

Filing Process:

2. Limited Civil Court ($12,501 - $35,000)

For amounts between $12,500 and $35,000, file in Limited Civil Court:

3. Unlimited Civil Court (Over $35,000)

For claims exceeding $35,000, file in Unlimited Civil Court:

4. Collection Agencies
Third-Party Collections: You can refer the debt to a licensed collection agency. Be aware that:
  • Agencies typically charge 25-50% of amounts collected
  • Agency must be licensed in California (Business and Professions Code 6850-6851)
  • You lose direct control over collection efforts
  • Can damage client relationship permanently
  • Useful when you lack time to pursue collection yourself
5. Credit Reporting

You can report unpaid debts to commercial credit bureaus:

Fair Credit Reporting Requirements: If reporting to consumer credit bureaus, you must comply with the Fair Credit Reporting Act (FCRA) and California Consumer Credit Reporting Agencies Act (Civil Code 1785.1 et seq.). Provide accurate information and respond to disputes. False or negligent reporting can result in liability.
6. Mechanic's Lien (Construction/Improvement Work)
Powerful Remedy for Contractors: If you provided labor or materials for improvement of real property, you may have mechanic's lien rights under Civil Code 8400-8494. This allows you to place a lien on the property itself.

Mechanic's Lien Requirements:

7. Attachment and Prejudgment Remedies

In some cases, you can obtain a writ of attachment to secure the defendant's assets before judgment:

8. Post-Judgment Collection

If you obtain a judgment and the debtor does not pay voluntarily:

Collection Method Description
Wage Garnishment Court orders employer to withhold up to 25% of debtor's wages
Bank Levy Sheriff seizes funds from debtor's bank accounts
Property Lien Record abstract of judgment against debtor's real property
Personal Property Levy Sheriff seizes debtor's equipment, vehicles, inventory
Till Tap For businesses, sheriff can collect cash from registers
Debtor Examination Court orders debtor to appear and disclose all assets
Assignment Order Court orders debtor's customers to pay you directly
Judgment Duration: California judgments are enforceable for 10 years and can be renewed for another 10 years. Interest accrues at 10% per year. Even if the debtor cannot pay now, you can wait and collect later when their circumstances improve.
9. Fraudulent Transfer Claims

If the debtor transfers assets to avoid paying you, you may have remedies under the Uniform Voidable Transactions Act (Civil Code 3439 et seq.):

Attorney Services
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I help businesses and individuals recover unpaid invoices, draft effective demand letters, and pursue litigation when necessary. Whether you have a single large outstanding invoice or multiple delinquent accounts, I can help you develop a strategy to get paid.

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Common Cases I Handle
When to Consult an Attorney
Consider consulting an attorney if:
  • The amount owed is substantial (over $10,000)
  • The debtor has raised legal defenses or disputes
  • The debtor is a corporation or well-funded entity
  • You need to pursue mechanic's lien rights (strict deadlines)
  • The debtor is in another state (requires interstate collection)
  • You have multiple outstanding accounts requiring systematic collection
  • You need to pursue fraudulent transfer claims
  • You obtained a judgment but cannot collect
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Book a call to discuss your unpaid invoice collection case. I will review your situation, explain your legal options, and recommend the most effective strategy to recover what you are owed.

Contact Information

Email: owner@terms.law

Frequently Asked Questions
Under California Civil Code Section 3289, you can charge the interest rate specified in your contract (up to usury limits). If your contract does not specify an interest rate, you are entitled to 10% per annum on unpaid amounts. For contracts without any written agreement, the legal rate is 7% per annum. Interest begins accruing from the date payment was due. Always include interest calculations in your demand letters to maximize recovery.
The statute of limitations depends on the type of agreement. For written contracts, you have 4 years from the date payment was due. For oral contracts, you have 2 years. For sales of goods under the Commercial Code, you have 4 years. The clock starts running from the payment due date, not when you discovered the non-payment. Do not wait - send demand letters promptly and file suit before the deadline expires.
Yes, but with limitations. Corporations and LLCs can sue in small claims court but are limited to claims of $6,250 or less (compared to $12,500 for individuals). Additionally, business entities can only file two small claims per year for amounts over $2,500. The business must be represented by a regular employee, officer, or director - not an attorney. For claims above $6,250, you will need to file in civil court.
If a customer disputes quality, demand specific written objections. Vague claims of dissatisfaction are often pretextual to avoid payment. If legitimate issues exist, offer to cure them while still demanding payment for undisputed amounts. Document your good-faith efforts to resolve disputes. In litigation, the customer would need to prove the goods or services were defective and quantify their damages. Often, their "disputes" disappear when faced with a lawsuit.
Under California Civil Code Section 1719, you can recover: (1) the amount of the check, (2) a service charge of $25 for the first check or $35 for subsequent checks, and (3) treble damages - three times the check amount, with a minimum of $100 and maximum of $1,500. Before suing for treble damages, you must send a written demand by certified mail and wait 30 days for payment. If payment is not made, you can pursue the enhanced damages in court.
You can recover attorney fees if your contract includes an attorney fees clause. Under California Civil Code Section 1717, if a contract provides for attorney fees to one party, it applies reciprocally to both parties. Even without a contract clause, Civil Code Section 1717.5 allows recovery of reasonable attorney fees in contract actions where the principal amount is under $5,000. Always review your contracts for fee provisions before filing suit.
If the customer filed bankruptcy, you must immediately stop all collection efforts (the automatic stay prohibits any collection activity). File a proof of claim in the bankruptcy case to preserve your rights. If the business simply closed without bankruptcy, you may still pursue the business entity and potentially the individual owners. LLCs and corporations normally protect owners from personal liability, but exceptions exist for fraud, undercapitalization, or personal guarantees. Consult an attorney to evaluate your options.

Related Resources

Explore additional California demand letter guides and legal resources:

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California Unpaid Invoice Collection: Your Legal Rights

When customers or clients fail to pay invoices in California, you have powerful legal remedies. California Civil Code Section 3289 entitles you to 10% annual interest on unpaid amounts, while breach of contract claims can recover the full principal plus costs. Understanding these laws helps you write effective demand letters and recover what you are owed.

Key California Statutes for Invoice Collection

Effective Invoice Collection Strategy