Understanding Non-Payment Demands
When a vendor, contractor, or service provider sends a demand letter for unpaid invoices, you need to evaluate whether the debt is legitimate, disputed, or already paid. Ignoring valid demands can lead to lawsuits, liens, and damaged credit—but paying invalid claims wastes money.
Contract Claims
Most B2B payment disputes are contract-based. Review your agreement terms, payment schedules, performance requirements, and any conditions precedent to payment.
Mechanic's Lien Threats
Contractors and suppliers can file mechanic's liens on your property. In California, they must send a preliminary 20-day notice. Lien rights have strict deadlines—use them strategically.
Interest and Fees
California allows 10% prejudgment interest on contract damages (7% if no contract rate specified). Contracts may also include attorney fee provisions that shift costs to the losing party.
⚠️ Mechanic's Lien Deadline Alert
If the claimant is a contractor or supplier threatening a mechanic's lien, know the deadlines: Direct contractors have 90 days after completion to record a lien. Once recorded, they have 90 days to file suit. Missing these deadlines eliminates lien rights—but doesn't eliminate the underlying debt claim.
Evaluate the Claim
Before paying or disputing, verify the claim's accuracy.
- Contract review: Is there a written contract? What are the payment terms?
- Invoice accuracy: Do the invoices match work performed? Are rates correct?
- Performance issues: Did they fully perform? Any defects, delays, or failures?
- Prior payments: Has this invoice already been paid? Check your records.
- Conditions precedent: Were there milestones or approvals required before payment?
- Offsets and credits: Do you have credits, returns, or damages to offset?
- Statute of limitations: When did the alleged debt arise?
- Preliminary notice: For construction, did they serve a valid 20-day preliminary notice?
Potential Defenses
Non-Performance / Defective Work
Strong DefenseIf the claimant failed to perform as agreed, performed defectively, or delivered late, you may have grounds to withhold payment or assert a counterclaim for damages.
Evidence Needed
- Contract specifying deliverables and standards
- Documentation of defects or failures
- Correspondence regarding problems
- Cost to repair or complete with another vendor
Invoice Disputes / Overcharges
Strong DefenseThe invoiced amount doesn't match agreed rates, includes unauthorized charges, or bills for work not performed.
Common Issues
- Rates higher than contract specifies
- Billing for work not authorized in writing
- Double-billing for same work
- Inflated hours or quantities
Setoff / Recoupment
Reduces AmountYou have legitimate claims against the creditor that offset the amount owed—damages from their breach, credits owed, or amounts they owe you from other transactions.
Setoff Examples
- Damages from their defective performance
- Credits or rebates owed
- Debts they owe you on other matters
- Cost of having others fix their work
Conditions Not Met
Contract-BasedPayment was contingent on conditions that haven't been satisfied—milestones, deliverables, approvals, inspections, or other contractual requirements.
Common Conditions
- Project milestone not completed
- Final inspection/approval not given
- Documentation not delivered
- Warranty or insurance not provided
Statute of Limitations
Complete DefenseThe claim is time-barred. Written contracts: 4 years. Oral contracts: 2 years. The clock typically starts when payment became due.
California Deadlines
- Written contract: 4 years (CCP § 337)
- Oral contract: 2 years (CCP § 339)
- Open book account: 4 years (CCP § 337)
- Partial payment may restart clock
Response Strategy
Don't Ignore It
Silence can be used against you. Respond in writing, even if just to dispute the amount or request documentation. This preserves your defenses.
Request Documentation
Ask for copies of the contract, detailed invoices, proof of delivery/completion, and any correspondence. Legitimate creditors will provide these promptly.
Assert Setoffs Clearly
If you have legitimate offsets (defective work, credits owed), state them specifically in writing. Don't just refuse to pay—explain why.
Consider Partial Payment
If you acknowledge part of the debt but dispute the rest, consider paying the undisputed portion. This shows good faith and limits interest accrual.
Negotiation Leverage Points
- Offer faster payment in exchange for discount
- Propose payment plan if cash flow is tight
- Point out litigation costs vs. settlement value
- Note documentation gaps in their claim
- Assert counterclaims for defective performance
Sample Responses
📄 Requesting Documentation
Dear [Claimant]:
I received your letter dated [date] demanding payment of $[amount] for [described services/goods].
To properly evaluate this claim, please provide the following within 14 days:
1. Copy of any written contract or agreement;
2. Itemized invoices with dates, descriptions, and rates;
3. Proof of delivery or completion (delivery receipts, sign-offs, completion certificates);
4. Any change orders or scope modifications;
5. Payment history showing prior payments received.
Upon receipt and review of this documentation, I will respond substantively. Until then, I reserve all rights and defenses.
📄 Disputing Based on Defective Performance
Dear [Claimant]:
I am responding to your demand for payment of $[amount] dated [date].
I dispute this claim based on your failure to perform as agreed. Specifically:
1. [Describe specific performance failure, defect, or breach];
2. [Describe impact on your business or additional costs incurred];
3. [Reference contract provisions violated].
Under the contract, payment was contingent upon satisfactory completion. Your work [did not meet specifications / was delivered late / contained the following defects: ...].
I have incurred $[amount] in damages to [repair/complete/mitigate] these issues. Rather than owing you money, I have a claim against you for breach of contract.
If you wish to discuss resolution, I am willing to meet. However, any lawsuit will be met with vigorous defense and counterclaims.
📄 Partial Payment with Dispute
Dear [Claimant]:
I have reviewed your demand dated [date] for $[total amount].
I acknowledge that $[undisputed amount] is owed for [describe undisputed work/services]. I am enclosing payment for that amount.
However, I dispute the remaining $[disputed amount] for the following reasons:
1. [Invoice X] includes charges for work never authorized;
2. [Invoice Y] uses rates higher than our agreed rate of $[amount];
3. [Describe any other disputes].
This partial payment is not an acknowledgment that any additional amount is owed. I consider the enclosed payment to be payment in full for the undisputed work. If you disagree, please provide documentation supporting the disputed charges.
Please endorse and deposit the check accordingly.
📄 Response to Mechanic's Lien Threat
Dear [Contractor/Supplier]:
I received your letter dated [date] threatening to file a mechanic's lien for $[amount].
Before considering payment, please confirm the following:
1. Did you serve a valid 20-day preliminary notice as required by Civil Code § 8200?
2. When was the work completed or last materials supplied?
3. Please provide a signed, unconditional waiver and release for any amounts previously paid.
[If disputing the underlying claim:] I dispute your claim for the following reasons: [describe defects, non-completion, overcharges, etc.]
Filing a frivolous or excessive lien may expose you to liability under Civil Code § 8424 (wrongful lien) and may result in forfeiture of lien rights. I encourage you to review your claim carefully before recording any lien.
I am willing to discuss legitimate amounts owed, but will vigorously defend against improper lien claims.