Make Sure You Can Recover the Cost of Getting Paid

If a customer does not pay after you deliver services or products, your contract determines what happens next. In the United States, you cannot recover attorney’s fees or collection costs unless your contract specifically says so—that is the American Rule. Without this provision, even if you win in court, you eat your own legal costs.

A straightforward clause stating that the breaching party pays attorney’s fees and collection costs changes the math entirely. It shifts the financial risk of nonpayment onto the party that caused the problem.

Arbitration: Not Always the Better Path

An arbitration provision means both sides agree to resolve disputes through a private arbitrator rather than in court. There are real advantages—you can choose the location, keep the dispute confidential, and avoid public court records your competitors could access.

But there are trade-offs most business owners overlook. Your tax dollars already pay for judges; arbitrators charge hundreds of dollars per hour, and both sides split the tab. If the other party wants to drag things out, arbitration can cost just as much as litigation.

Think About Who Is Likely to Sue

Before adding an arbitration clause, ask yourself: who is more likely to bring a claim under this contract? If you are the one providing services and the main risk is chasing unpaid invoices, public court may actually serve you better. If confidentiality matters more—say you do not want competitors knowing about your disputes—arbitration has a clear edge.

Large companies often require arbitration in every contract precisely to keep legal fights out of the public record. That same strategy may or may not fit your situation.

Tailor Each Contract to the Relationship

Not every contract needs the same terms. You might include arbitration in agreements where privacy is essential and leave it out where you expect to be the one enforcing payment. The key is being deliberate about these provisions rather than using a one-size-fits-all template.

Video Transcript

Introduction to Independent Contractor Contracts

If you’re doing business, you’re almost certainly dealing with independent contractors, whether that’s you, your team, or the people you hire. But are your contracts protecting you the way they should? In this video, we’ll break down critical contract provisions every business owner should know from getting paid.

Independent Contractor Relationships

If a client ghosts you to deciding whether arbitration is a smart move, these aren’t just legal details, they’re strategic tools that can make or break your next deal. Let’s talk about some common types of independent contractors. Well. In your relationship with customers and clients of your company, that clearly is an independent contractor relationship.

We probably call you the independent contractor here, but you’re providing some sort of goods, products or services, some sort of labor or some other value, whatever it is you are
providing with customers or clients, that’s going to be an independent contractor relationship. So that’s one very common type of contract that we need to attend to.

Payment Terms and Enforcement

What are some important provisions that you should have in your contracts with your customers or clients? First, you might want to think about making sure you get paid. Now, if they pay you in advance, not a problem. We don’t have to worry about going after them for unpaid payments. According to your contract, but let’s say for example, you provide services or products and then they’re supposed to pay you and don’t.

Attorney’s Fees and Collection Costs

Well, we wanna make sure that in the contract is an attorney’s fees provision and a collections cost provision. Usually that’s in the same provision or section, and it says simply, if your customer
doesn’t pay you, you have a right to sue. For those payments and recover attorney’s fees and collection costs that you incur in going after them.

If you live in the UK, it’s assumed to my knowledge that you’re allowed to recover breach of contract attorney’s fees. But in the United States, it’s called the American rule. You need to have it in your contract if you have a right to recover it.

What Arbitration Means

Another important provision to consider for all of your contracts, but especially with your customers or clients, is an arbitration provision.

Let’s talk about what arbitration is. There’s a federal law which says anytime parties enter into an agreement that their dispute will be handled by a private judge called an arbitrator. Or an arbitration organization, then any
dispute will be handled there, not in a court. So essentially an arbitration provision is where the parties say, we don’t wanna go to court.

Opting for Private Resolution

We’re gonna give up all the protections and all the expense and hassle of going to a court, and we’re gonna have our dispute resolved in arbitration. Now it’s important to think about with each one of your contracts. Is this to your advantage? Well, here’s one advantage to having an arbitration provision.

You can designate where the arbitration will take place and which arbitration organization that will be. So you, for example, could pick your hometown, your city, or county, or town where you live. That gives you a convenient forum. Or venue in order to have any sort of dispute.

Who Pays and How Much

One of the problems with an arbitration clause is your tax dollars pay
for judges to resolve all the cases in court, but you’ve just opted out of that.

You now have to pay the arbitrator to
take care of your case. Both sides typically split the arbitrator’s fees and you’re typically paying pretty significant fees because the arbitrator is an attorney, usually sometimes a retired judge, and both parties are usually paying hundreds of dollars an hour for any work the arbitrator does.

That includes looking at the documents ahead of time, listening to both sides, writing up a response or a ruling afterwards. So instead of your tax dollars paying a judge to do all of that work, you are now writing a check to pay the arbitrator fees in addition to the attorney’s fees.

Time and Expense Factors

In theory, arbitration can be less
work for the attorneys.

But frankly, that’s not always the case. If one party wants to drag it on and fight over everything, your attorney is gonna need to respond. And so practically speaking, arbitration can be just as expensive as going to court. So in a way, having an arbitration provision is somewhat an advanced.

Who Is Likely to File Suit?

Consideration, but here’s what I would think about who’s likely to have to sue on this contract. For example, if the contract says, I will perform services and the other party will pay me $20,000, am I likely to get sued? I think to myself, well, probably not. ’cause I’m gonna do a good job, but the other side, if they don’t pay me, I’m gonna have to sue them.

So would I rather be in arbitration? Or a public court.

Privacy as a Strategic Advantage

By the way, one other consideration with that is all the
documents in a public court. Our public information. So you might say to yourself, you know what? I don’t want this sort of dispute in a public court. I want it in a private venue where all the evidence in that case cannot be accessed by third parties like my competitors.

So there’s another advantage to arbitration, keeping the dispute private. It doesn’t get filed in the public court records. Now, usually once it’s done, a decision can get filed in the court records in order to enforce it.

But what you will find many times is big companies will require everybody they work with to enter into contracts that have arbitration provisions in them.

That way it is not public knowledge if they’re in a bunch of legal fights, because all of those fights are in private arbitration organizations.

Customizing Your Contracts

So as you can see, there’s a lot of strategy as it relates to whether to have an arbitration provision in each contract. And many times I’ll recommend arbitration provisions in some contracts for one client, but not other contracts, because certain contracts we want resolved privately and we want some of the benefits of arbitration and the.

Uh, disadvantages are not significant. Other times the disadvantages are too important and we want this fight if there is one to be resolved by a court.

Reviewing Future Agreements

So there are plenty of articles online about the pros and cons of arbitration. The goal today is to be thinking about do your important contracts have an arbitration provision?

And do you want there to be an arbitration provision in future contracts or the next time you renew or
revise your existing contracts?

Free Resource for Business Owners

If you’d like to know more about how to avoid trouble like this, I have a free resource at AaronHall.com/free. I provide information for business owners of small to midsize companies on how to avoid common legal problems.

That includes. A PDF. It includes videos talking about important issues. I’m Aaron Hall. I’m an attorney for business owners and entrepreneurial companies. If you’d like, subscribe to this channel so you can get more educational content like this.