Self-Help, Deny Them Payment
So last week, I said you might want to consider talking things out. When one side shuts down, tempers usually explode and one-side immediately wants to go to a lawsuit. Generally, speaking talking things out and coming up with a new agreement (albeit not the original one) is less costly. Another approach you may take, and this is with caution, is that if you are the person paying for the goods or services, you may refuse to pay for lack of goods or services. The problem with this method is that by not paying, depending on the circumstances, you may be breaching the contract as well. IF YOU BREACH THE CONTRACT YOU MAY LOSE CERTAIN RIGHTS OR CLAIMS. That’s why this option is cautioned, and generally you should speak to your attorney to figure out if this is a path you might want to consider. I will talk about checks, credit cards, and briefly of PayPal.
Stopping Payment with Checks
(1) you open a bank account; (2) you use a check to pay; (3) the other party accepts payment; (4) the deposit the check to their bank; (5) their bank requests payment from your bank; (6) your bank pays them from your account.
Yes, I realize that checks are quickly becoming a relic of the past, but a large portion of small businesses starting up still accept and use checks before they set-up other forms of payment. This is as simple as calling up your bank and telling them to not pay out on the check from your account IF the transfer has not already been made. Generally, when you set-up a bank account your bank and you have a contractual relationship, and the person you are trying to deny payment to also has a relationship with the bank that is trying to collect. Therefore, the bank has an obligation to pay out on checks you authorize and also stop payment on checks you no longer okay.
Same process as before, but the breakdown comes when you dispute payment. So When you decide to self-help, step (4) and tell your bank to stop payment, when the other side’s bank tries to claim funds from your account due to the deposited check, your bank will refuse the request.
What you don’t want to do is empty your bank account, why? Consider, the fact that the bank is not a mind reader. However, you are a small business owner sending out tons of checks. Consider for a moment that you, yourself receive tons of checks and different times, do you cash all those checks immediately? Probably not, you wait for a certain scheduled date and take all the checks down. So given that, do you think you bank knows, which checks it should pay and not pay? Probably not.
So if you are a small business owner, you may be using your personal credit card to pay for things. Depending on the rights you have, as under contract with the credit card company, you may have your company not pay regarding the goods in dispute. Recognize, that your customers may consider the same tactic.
Notice that I said personal credit cards, consumers generally have more protection than businesses as I have mentioned in prior posts. The same goes for credit cards, there are personal ones and business ones. Check what you have, as you may far fewer rights on your business one than your personal one.
The credit card relationship works differently. (1) you form a contractual relationship with your credit card company (ccc); (2) you pay with card; (3) the person accepts; (4) the ccc receives the charge; (5) accepts; (6) charges you for that amount OR alternate (6) you dispute the goods or services, and the credit card company pulls that payment.
Good News For Merchants and Retailers: Charging More for Accepting Credit Cards
That being said, a good piece of news for you merchants and retailers that accept credit card. A recent class-action suit was decided in favor of the retailers and merchants against the major credit card companies. What this means is you may in the future be able to charge more for people who choose to pay by credit card. You can read more here.
Finally, as I know we live in the age of smartphones and electronic payment, what about PayPayl? With PayPal it is very simple. You can cancel any payment that has not been claimed yet. However, it must be unclaimed. If it has been claims you are back to last week’s post and contacting the other side for a refund. For more information on the step-by-step process, click here.
Last Word: Stop and Consider What you are Doing When you Try to Stop Payment
Consider what you are doing when you try to stop payment. This definitely is shutting off communications, which is why you might want to try to talk to them first as last week post suggested. In addition, depending on the situation, you may be reducing chances of settling this, losing claims or rights (being breach yourself), and finally subjugate yourself to a debt collection action. Therefore, even if talking is not working, this still may not be the best option, may be you need an outsider to talk to the other side, which will be the subject of next week’s post.
[author] [author_image timthumb=’on’]http://www.alohastartups.com/wp-content/uploads/2011/09/RyanKHew.png[/author_image] [author_info]I am a practicing attorney in Honolulu, HI helping small businesses with their transactional and compliance needs. Contact Me Today: Web| 808.944.8400 @RKHewEsq Ryan K. Hew, Attorney At Law[/author_info] [/author]
*Disclaimer: This post discusses general legal issues, but does not constitute legal advice in any respect. No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction. Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.