What to Do When a Customer Won’t Pay: A Kentucky Business Owner’s Guide
You did the work. You delivered the product. And now the customer will not pay. For Kentucky small business owners, unpaid invoices are more than an inconvenience — they threaten cash flow, payroll, and the survival of the business itself. The good news is that Kentucky provides several legal tools for collecting what you are owed, and acting quickly improves your chances significantly.
Start with a Demand Letter
Before filing suit, send a formal written demand. A well-drafted demand letter on attorney letterhead accomplishes several things: it puts the debtor on notice that you are serious, it creates a paper trail documenting your efforts to resolve the matter, and it often prompts payment without the expense of litigation. The letter should clearly state the amount owed, the basis for the debt (contract, invoice, services rendered), a deadline for payment (typically 10 to 30 days), and the consequences of non-payment — including the possibility of litigation and the debtor’s obligation to pay attorneys’ fees if your contract includes a fee-shifting provision.
Small Claims Court vs. Circuit Court
If the demand letter does not produce results, you will need to file suit. For debts of $2,500 or less, Kentucky’s small claims division of the district court offers a streamlined process under KRS 24A.230 through KRS 24A.300. The filing fees are modest, the rules of evidence are relaxed, and cases move quickly — often resolved within 60 to 90 days. For debts exceeding $2,500 but not more than $5,000, district court has jurisdiction. For amounts above $5,000, you will file in circuit court.
Prejudgment Remedies: Protecting Assets Before Trial
A debtor who knows a lawsuit is coming may try to hide or transfer assets. Kentucky provides several prejudgment remedies to prevent this. An attachment under KRS 425.301 allows a creditor to seize a debtor’s property before judgment if the debtor is about to dispose of assets to defraud creditors, has left or is about to leave the state, or is a nonresident. A lis pendens filing puts the world on notice that the debtor’s real property is subject to a pending claim. These tools require a court order and typically a bond, but they can prevent a debtor from dissipating assets before you get to judgment.
Getting a Judgment — and Then Collecting on It
Winning a judgment is only half the battle. A judgment is a piece of paper that says the debtor owes you money — it does not put money in your account. Post-judgment collection tools in Kentucky include wage garnishment under KRS 425.506 (up to 25% of disposable earnings), bank account garnishment, and judgment liens on real property under KRS 426.720. You can also conduct a supplemental proceeding (debtor’s examination) under CR 69.03, which requires the debtor to appear in court and disclose their assets, income, and financial accounts under oath.
Attorneys’ Fees and Interest
If your contract includes an attorneys’ fees provision, you can recover your legal costs from the debtor. Even without such a provision, Kentucky allows recovery of pre-judgment interest at the statutory rate of 8% per annum under KRS 360.010, running from the date the debt became due. Post-judgment interest accrues at the same rate. These additions can significantly increase the total recovery and provide additional incentive for the debtor to settle.
Preventing Collection Problems in the First Place
The best collection strategy starts before you extend credit. Use written contracts that clearly state payment terms, late fees, and attorneys’ fees provisions. Conduct basic credit checks on new customers. Invoice promptly and follow up immediately when payments are late. The sooner you act on a delinquent account, the more likely you are to collect.
If your Kentucky business is dealing with a customer who will not pay, Buckles Law Office can help. Call (859) 225-9540 to discuss your collection options.
