What Happens When a Contractor Doesn't Get Paid? Your Options Explained
You finished the work. You sent the invoice. And now you are waiting. Days turn into weeks. The client stops returning calls. The check is always "in the mail." The excuses pile up, but your bank account stays the same.
Non-payment is the most common and most damaging problem in the construction industry. According to industry surveys, nearly 60% of contractors and subcontractors report having trouble collecting payment on at least one project in any given year. The average payment dispute in construction involves thousands of dollars and takes months to resolve, if it gets resolved at all.
But here is what most contractors do not realize: you have powerful legal tools available to you, and the sooner you use them, the better your chances of getting paid. Here is a complete breakdown of your options, from least aggressive to most aggressive, and when each one makes sense.
Option 1: The Formal Demand Letter
A demand letter is the first step in any payment dispute. It is a written notice to the person or company that owes you money, formally demanding payment within a specific timeframe and outlining the consequences if they do not pay.
Why it works: A well-written demand letter demonstrates that you are serious about collecting what you are owed and that you are prepared to take further action. Many payment disputes are resolved at this stage because the debtor realizes you are not going to quietly go away.
What to include:
- The amount owed with a breakdown (original contract amount, change orders, any credits)
- The date payment was originally due
- A reference to the contract or agreement
- A specific deadline for payment (typically 10-15 business days)
- A clear statement of what you will do if payment is not received (file a lien, pursue legal action, etc.)
When to send it: Send a demand letter as soon as payment is more than 30 days overdue. Do not wait months hoping the situation will resolve itself. The longer you wait, the harder it becomes to collect and the closer you get to lien filing deadlines.
Important tip: Send the letter via certified mail with return receipt requested. This creates proof that the debtor received the notice, which matters if you need to escalate later.
Option 2: The Mechanics Lien
A mechanics lien is the most powerful tool available to construction professionals who have not been paid. It is a legal claim placed on the property you improved, and it gives you a security interest in that property until you are paid.
Why it is so effective: A mechanics lien attaches to the property itself, not just to the person who owes you money. The property owner cannot sell or refinance the property without dealing with your lien first. This creates enormous pressure to resolve the payment dispute because the lien affects the property's title and marketability.
Who can file: In most states, anyone who provided labor, materials, or services to improve a property can file a mechanics lien. This includes general contractors, subcontractors, material suppliers, equipment rental companies, and in many states, design professionals like architects and engineers.
The critical deadlines: Every state has specific deadlines for filing a mechanics lien, and missing the deadline by even one day means you lose your lien rights permanently. These deadlines vary significantly by state, by your role on the project (general contractor vs. subcontractor), and by whether the project is on public or private property.
For example, in Texas, subcontractors on residential projects must file their lien affidavit by the 15th day of the third month after their last day of work. In California, the deadline is 90 days after completion of the project. In Florida, it is 90 days after your last date of furnishing labor or materials.
How LienShield helps: LienShield tracks these deadlines for all 50 states and calculates your specific filing windows based on your project details. Our AI-powered deadline calculator accounts for your state, your role, the project type, and your last day of work so you never miss a critical date.
Option 3: The Bond Claim
If the property is public (government-owned) or if the project has a payment bond, a bond claim may be your best path to payment. Public projects typically cannot have mechanics liens filed against them, but they are required to carry payment bonds that serve the same purpose.
How bond claims work: A payment bond is essentially an insurance policy purchased by the general contractor that guarantees payment to subcontractors and suppliers. When you file a bond claim, you are making a claim against that insurance policy.
Advantages of bond claims: Bond claims can be faster than lien claims because the bonding company has a financial incentive to resolve claims quickly. You also do not need to go through the property owner, which removes one layer of complexity.
Deadlines and notices: Like mechanics liens, bond claims have strict notice and filing deadlines that vary by jurisdiction and by the type of bond (federal Miller Act bonds have different requirements than state Little Miller Act bonds). Missing these deadlines eliminates your right to make a claim.
Option 4: Small Claims Court
For disputes under a certain dollar amount (which varies by state, typically $5,000-$15,000), small claims court is a fast and inexpensive option that does not require a lawyer.
Advantages: Filing fees are low (usually $30-$100), the process is relatively quick (cases are typically heard within 30-90 days of filing), and you represent yourself without needing an attorney.
Limitations: The maximum claim amount is limited by your state's small claims threshold. You also need to be able to serve the defendant, which can be challenging if the person or company has moved or is avoiding service. Even if you win a judgment, collecting on it is a separate challenge.
Best for: Smaller disputes where the amount does not justify the cost of hiring a lawyer or filing a mechanics lien, or situations where the debtor has assets you can attach with a judgment.
Option 5: Formal Litigation
For larger disputes or complex situations, a lawsuit in civil court may be necessary. This is the most expensive and time-consuming option, but it provides the broadest range of remedies.
When to litigate: When the amount at stake justifies the legal costs (generally over $10,000-$15,000), when other collection methods have failed, or when there are complex issues like contract disputes, defective work allegations, or multi-party disputes.
What to expect: Litigation typically takes 12-24 months and costs anywhere from $5,000 to $50,000 or more in legal fees depending on the complexity. However, many construction payment disputes settle before trial once the debtor realizes you are serious.
The Prevention Strategy
The best time to protect your payment is before you start the work. Here are steps every contractor should take before beginning any project:
Get a written contract. This sounds obvious, but a shocking number of construction professionals work on verbal agreements or handshake deals. A written contract that specifies the scope, price, payment schedule, and change order process is your primary protection. If you are not confident in reviewing contract language, tools like ClauseShield can analyze your agreement and flag risky terms before you sign.
Send preliminary notices. Many states require subcontractors and suppliers to send a preliminary notice to the property owner before they can file a lien. Even in states where it is not required, sending one establishes your presence on the project and puts the owner on notice that you are providing labor or materials. This alone often prevents payment problems.
Document everything. Keep records of all work performed, materials delivered, communications about payments, and any changes to the scope. Photographs with timestamps are invaluable. This documentation is essential if you need to file a lien or pursue a legal claim.
Know your deadlines. Your lien rights expire on specific dates that vary by state and by your role on the project. Track these dates from the first day you set foot on the job site. LienShield's deadline calculator does this automatically for all 56 jurisdictions.
Act Fast -- Your Rights Have Expiration Dates
The single most important takeaway is this: your payment recovery options have deadlines, and they start ticking from the day you finish your work or deliver your materials. Every day you wait reduces your leverage and narrows your options.
Do not wait for the client to "work things out." Do not give them unlimited time to pay. Send the demand letter. File the preliminary notice. Know your lien deadline. And if payment does not arrive, take action before your rights expire.
Protect your lien rights today
LienShield handles deadline tracking, AI form filling, and compliance checking for all 56 US jurisdictions. Enter your project details once -- we handle the rest.