Guide to Resolving Business and Customer Disputes in the U.S.

This is a guide for businesses to resolve disputes with other businesses, or with customers and clients. Whether your customer isn’t paying for the goods or services you provided, or your vendor didn’t provide what you paid for, here’s what you need to know.

Most business disputes relate to contracts and agreements, so be sure to read our Guide to Enforcing Contracts.

How can I resolve a business dispute?

One or more of the following may be viable options for getting what your business legally deserves, or to resolve a dispute:

• Send a debt to a collections agency
• File a standard lawsuit
• File a lawsuit in small claims court
• Engage in alternative dispute resolution, including arbitration and/or mediation
• Threaten to do one or more of the above actions (sometimes threats alone can get you the result you want)

One or more of these options may make more sense for your situation than the others, so you should be sure to discuss with a lawyer.

Should I send a debt to a collections agency?

If a customer or client owes you money for services or products you provided, you may want to try sending the account to a third party collections agency. A collections agency is usually a for-profit business that attempts to collect on a debt by contacting the debtor directly, and by other various means.

In general, any business that is owed money and has not received payment according to the terms of an agreement can choose to send the debt to a collections agency for assistance in recovering the owed funds. This is a common practice across various industries. However, there are certain legal and ethical guidelines that businesses and collections agencies must follow when pursuing debts.

Legal and Regulatory Guidelines: Businesses and collections agencies must adhere to federal and state laws that regulate debt collection practices. These laws, such as the Fair Debt Collection Practices Act (FDCPA), outline what actions are permissible when attempting to collect debts. Harassment, misrepresentation, and unfair practices are prohibited.

Debt Thresholds: Some businesses might choose not to send smaller debts to collections due to the cost and effort involved. There might be a minimum threshold that warrants involving a collections agency.

Credit Reporting: Sending an account to collections can affect the debtor’s credit report and score. This potential impact is one reason why businesses might choose to involve collections agencies, as it can serve as an additional incentive for debtors to settle their debts.

Should I file a standard lawsuit?

Filing a lawsuit, or initiating litigation should generally be a method of last resort for a business looking to exercise its rights or resolve a dispute. Lawsuits are generally quite expensive and time-consuming. Another drawback is the lack of privacy, as most of the filings and proceedings are public record. Thus, it may be best to start with one or more of the other methods of exercising your rights.

Before actually filing the papers for a lawsuit, you would generally want to let the customer/client or other party know that you are considering doing so. The mere threat of a lawsuit can often encourage the other side to give you what you want.

That said, taking someone to court is often the only way they will comply with the law and do what they are supposed to do, whether that involves paying you money or carrying out other contractual obligations.

Most often, you do not need to proceed all the way through the litigation to get a court decision. Most cases settle out of court, meaning that the parties make a settlement agreement, which usually involves a certain amount of money.

Should I file in small claims court?

If your claim against a customer or other party involves a relatively small amount of money, then it usually makes sense for a business to file in small claims court rather than standard court. Small claims court is generally a relatively speedier and easier process.

Each state sets its own limits for how much you can sue for in small claims court, but the range is generally $5,000 to $25,000. This limit may be different depending on who initiates the suit, whether a business or an individual. For California residents, check out our Guide to California Small Claims Court.

Should I do mediation or arbitration?

Businesses should consider mediation as a good option to start with before going straight to court. This would involve engaging the services of a mediator or third-party neutral to help reach an agreement with the other party.

Arbitration is a form of resolving disputes outside of court, in which an arbitrator (kind of like a judge) issues a binding decision on the parties. It is often required to go to arbitration rather than court, as many consumer contracts, employment agreements, and many other transactions involve a mandatory arbitration agreement. See our Guide to Arbitration for more.

What do I do if I’m being sued?

See our guide Help! I’m Being Sued

Further Resources

Guide to the Law for Business Owners

For help in moving forward with any of the above courses of action, contact a lawyer.