6 Tips for Managing Payment Dispute Resolution as a Contractor
You’ve probably been there—sat down to draw up a contract for an upcoming job and thought, “No, it’s a lot of unnecessary paperwork. Besides, I can trust this client.” So, you shake on it and take a home renovation job without a formal contract.
“Risky” is the right word to describe such a situation.
What if the client doesn’t hold up their end of the deal? Even with a written contract in place, some clients will still try to shirk payment or shortchange contractors. Now imagine a scenario where the client refuses to pay, and you don’t have the leverage of a signed contract.
What then—can you sue for non-payment without a contract?
Yes, you can definitely sue. But it won’t be easy.
For one, it might be very difficult to prove there was indeed a verbal agreement between you and the client. Secondly, suing for unpaid work is such a hassle, and it might not even be worth it.
This article explores other legal options for contractors besides going to court. It answers the following questions:
- Is a verbal contracting agreement valid and legally binding?
- How can I prove I completed a home improvement job without a contract?
- What are my legal rights as a contractor?
- Is a small claims court a good option?
- Can a payment dispute be settled out of court?
Understanding Verbal Agreements and Their Legal Standing

Let’s get the basics out of the way. What is a contract?
Cornell Law School defines a contract as “an agreement between parties, creating mutual obligations that are enforceable by law.” Notice there’s no mention of whether the agreement is written or verbal. That’s because, legally speaking, a verbal contract is just as good as a written contract.
The only reason we write down a contract is to document and seal the agreement. Neither party can go back on their word when it’s in plain black and white.
For contractors, a contract is a promise. The contractor promises to do a particular job at a specified price. Similarly, the client promises to pay the agreed amount at the stipulated time.
However, contracting agreements are never that simple. Take a flooring job, for example. The contract must clearly stipulate several specifics, such as:
- Which rooms are being floored
- What to do about the underflooring
- What flooring materials are to be used
- What to do with the waste materials
- How to handle cleanup
- When the job must be finished
- The guarantees made
It makes sense to write all that down. Plus, a written and signed agreement is the only proof you’ll need to show that you entered into a contract. More importantly, you can always refer to the document in case of any dispute, payment or otherwise.
Also, a written contract holds more weight in court. All the evidence of who breached the contract is right there. Meanwhile, arguing in court over a verbal agreement quickly descends into a he-said-she-said situation.
RELATED ARTICLE: How to Write a Scope of Work for Your Contractor Projects
Proving Work Completed Without a Written Contract
As the plaintiff in a non-payment case, the burden of proof falls on you. If you opt to sue a client for not paying, you best be prepared to prove three key facts:
- The client contracted you for a job in a professional capacity.
- You completed the job.
- The client failed to pay what they owe.
The law preserves contractor rights without a contract. As a contractor, you have the right to fair compensation for completed work. It doesn’t matter whether you had a prior written contract or not.
Additionally, the client is legally obligated to pay as per the verbal agreement. You’re also well within your right to claim what’s yours via any lawfully permissible means.
However, it’s your job to make the court see your side of the story. And that means presenting cold, hard evidence that your rightful demand for payment has been denied.
But how do you show proof of work without a contract?
Well, you’ll have to rely on circumstantial evidence to argue your case. Gather as much evidence as you can, however informal or far-fetched, to support your claim. Even seemingly weak proof can win you favor with the judge—you never know.
Supportive evidence may include:
- Any project documentation (quotations, work logs, receipts for materials and supplies, blueprints, invoices, and even napkin scribblings)
- Records of phone calls with the client
- Texts or emails between you and the client
- On-site photos
- Witness testimonies from people willing to corroborate your story
- Evidence of partial payments
- Records of payment follow-ups
It might be clear as day that the client owes you money. But without any substantial evidence, it will be your word against theirs. And the court will likely dismiss the case for lack of proof.
This is what makes suing for non-payment without a contract tricky. Without a formal contract backing you up, you may wind up grasping at straws to gather proof of unpaid work.
Legal Options for Contractors Facing Non-Payment

Suing might seem like the go-to solution to settle a payment dispute, but actually, it should be the last resort.
Running to court is not always the best option.
For starters, taking someone to court costs money. Expenses for legal and attorney fees and preparing the necessary paperwork can quickly add up. The cost of suing can even exceed the money you’re going after, which you may only realize when knees-deep in court proceedings.
Secondly, keeping up with court dates takes up valuable time—time you’d rather spend on paying jobs.
Luckily, there are other (sometimes better) ways to settle verbal agreement payment disputes besides suing.
Before going to court, try these options first.
Talk It Out with the Client
Perhaps you’re too eager to get paid that a slight delay looks like defaulting. Before anything else, ask the client about your payment. You might be pleasantly surprised to learn there’s a perfectly good reason for them not paying.
Lower Your Ask
The client might struggle to justify the payment if your ask is too high.
Let’s say a project overruns its planned budget, resulting in a higher invoice than the initial quote. The client may not understand or accept the bigger bill. And since there was no formal contract stipulating the terms of cost overruns, you’ll have no bargaining power here.
The same thing happens when the client is unhappy or dissatisfied with your work. They may have had very different and specific expectations that were never clearly documented at the beginning.
In such situations, the best thing to do is swallow that bitter pill and pocket what the client is willing to pay. A smaller payment is better than no payment at all.
Send a Formal Demand Letter
Having talked to the client and gotten nowhere, it’s time to be a bit more assertive. That starts with sending a formal demand letter.
A demand letter is a legal document usually drawn up by an attorney. In this case, it outlines the payment dispute and demands that the client take action to pay up.
The letter signals to the client that you’re taking the matter seriously. It also shows you’re willing to take aggressive legal action to get your money.
Negotiate a Payment Plan
Let the client know that you’re willing to work out a fair payment plan. Some clients will suggest negotiations if they feel they can’t afford to make the entire payment in one go.
If they agree (this time in writing) to spread out the payment over the next couple of months, you can rest your case. You won’t get paid as quickly as you had hoped, but you’ll get all your money eventually.
FROM ONE OF OUR PARTNERS: How to Create a Payment Agreement for Your Contracting Business
Consult a Legal Professional
If you’ve tried everything else and the client still hasn’t paid, suing might be the only resort. But first, consult a lawyer.
Talk to a qualified attorney about the verbal agreement payment dispute. They will review the situation and tell you whether you have a case or not. If your case is strong, the lawyer may suggest taking the matter to court.
They will likely advise presenting the case on grounds of quantum meruit or unjust enrichment.
Quantum meruit is Latin for “the amount one deserves.” It’s a legal doctrine that allows the court to determine and award fair compensation for contractual work even if the contract was not formally written. It means the court can decide how much you get paid based on the work done rather than the prior verbal agreement.
Unjust enrichment is an equitable remedy that requires one party to make restitution to another party if they have benefited at their expense. In your case, the client has gotten a free home remodel at your loss. It applies in compensation disputes where there’s no adequate remedy at law, such as an enforceable contract.
RELATED ARTICLE: 6 Tips for Managing Payment Dispute Resolution as a Contractor
The Role of Small Claims Court in Contractor Disputes
Small claims courts deal in minor civil disputes, such as a homeowner refusing to pay a contractor for a completed home renovation job.
It’s a cheaper and more convenient alternative to a fully-fledged court of law. It has all the perks for making small claims:
- You don’t need a lawyer to represent you.
- Trials are quick, only minutes long.
- There’s barely any paperwork involved.
- You only pay a small fee.
- Filing a case is quick and easy; you can even do it online.
- Proceedings are simple and easy to follow.
These courts are generally less formal and more flexible than regular state or federal courts. But, no, they are nothing like what you see on Judge Judy. Small claims courts are law courts in their own right.
Limitations of Small Claims Courts
The biggest limitation of the small claims court is right there in the name—“small claims.” You can only file claims up to a certain amount. The claim limit can be as low as $3,500, as is the case in the state of Arizona. And most courts limit the number of claims you may file in a year.
In Orange County, for example, individuals and sole proprietors cannot ask for more than $12,500 in a single case. Also, you can only file two cases in a calendar year for payment disputes exceeding $2,500 each.
And that’s the other thing. Small claims courts operate at the county level. Naturally, small claims rules, procedures, and limitations vary from county to county. So, always check with your local court clerk before filing a case.
What Are the Potential Outcomes?
The potential outcomes for small claims are pretty straightforward. The case could go one of four ways:
- The plaintiff (you) wins. The judge rules in your favor and orders the client to pay what they owe, including any associated damages.
- The defendant (client) wins. If the judge decides you don’t deserve payment, they’ll just let the client walk.
- The case is moved to the district court. The judge, client, or defendant can demand the case to be moved to a higher court.
- The judge recommends mediation. This happens when the judge feels the case can better be resolved through moderated negotiations.
Like in other courts, you can always appeal if things don’t go your way. That’s provided the case is open for appeal.
FROM ONE OF OUR PARTNERS: How to Send Someone to Collections: A Complete Guide
How to Prepare a Winning Case in Small Claims Court
Here’s what you can do to increase your chances of winning a non-payment dispute without a contract:
- Consult a lawyer for advice and guidance.
- Gather and file all your evidence days before the hearing.
- Prepare your witness.
- Get your story right before telling it to the judge.
- Rehearse for your court date.
- Dress the part.
- Be ready for any outcome.
Tips to Avoid Non-Payment Issues in the Future

Follow these six tips to avoid non-payment or delayed payment in future contracting jobs:
- Write a detailed agreement with clear and specific terms.
- Make sure all clients read and sign an agreement before starting work.
- Ask for an upfront deposit that’s at least 20% of the total quote.
- Record and document everything you do on any contracting job.
- Clarify strict payment terms in writing.
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