Contracts and Invoices: Do These Four Things to Get Paid Easier
Contracts and Invoices: Do These Four Things to Get Paid Easier

How to Make Getting Paid Easier: The Four Things That Should Be in Every Business Contract

Getting paid is a critical part of doing business, but the effort that’s occasionally required to actually get paid can be frustrating at times. The strength of your customer relationships and your diligence in managing accounts receivable are paramount to getting paid. However, sometimes additional action – including legal action – can be required in order to secure payment. The good news is that there are certain contractual provisions you can put in place that will make the collection of overdue payments less costly and much easier for you.

Ideally, a written agreement setting forth payment terms should be part of every transaction.  That said, it’s useful to know that, generally speaking, a contract is not required to be in writing to be legally enforceable. However, there are some exceptions to the general rule.

At the risk of further confusing the issue, there’s an important exception to this general proposition which applies to business transactions for the sale of goods. Colorado follows the Uniform Commercial Code (“UCC”), which requires a written agreement to enforce a contract for the sale of goods of $500 or more.[i] Ultimately, a written agreement with clear terms, signed by both parties, makes the enforceability of payment terms and collection of overdue amounts easier and more predictable.

With all that in mind, the following four things should be seen as essential elements of every business contract:

1. Attorney Fee Clause

The most important item that should be in every contract is a provision providing for the payment of all attorney fees and costs incurred in the collection of the amount owed. If someone is refusing to pay, you may be forced to hire an attorney to file suit against the individual for payment. This process can take a year or more if forced to proceed through trial, and it can result in significant attorney fees. Even then, you may require additional legal help to enforce a judgment against the debtor through garnishment, liens, or other enforcement procedures. Undoubtedly, attorney fees and costs associated with recovery add up quickly, and the longer it takes to recover, the more costly the process becomes.

Without a contract provision addressing collection costs – and particularly, attorney fees –  the default “American Rule” controls. The American Rule provides that each party is responsible for payment of their own attorney fees and costs. Without an attorney fee clause in the contract, you would be responsible for all of your attorney fees, easily leading to a situation where your collection costs exceed the amount of the unpaid bill you are trying to collect. This could force you to consider either abandoning a meritorious claim or significantly discounting your bill.

On the other hand, if you have a provision that shifts the costs of collection, including attorney fees, to the debtor, the debtor will be responsible for payment of the fees you incurred in collecting the amounts owed. A debtor faced with this outcome has a real motivation to agree to pay their outstanding balance sooner rather than later in order to avoid the compounding impact of the debt itself, their own attorney fees and costs, and your attorney fees and costs.

2. Interest

Business contracts should include a provision for charging interest when you are not paid in a timely manner. Charging interest on aged invoices incentivizes customers to make timely payments and compensates you for the loss of your use of money and the additional risk. In Colorado, the statutory default interest rate on money owed under a contract is 8% per year compounded annually if no specific interest rate is identified in the contract.[ii]  The maximum interest rate permitted in Colorado is 45% annually.[iii]  As a general rule, an interest rate of 10-15% per year compounded annually is considered fair and within the bounds of Colorado law.

The contractual interest provision should include clear terms as to when payment is due, such as “Net 30” language. Without clear payment due date terms, it will be confusing for the parties to agree when interest begins to accrue. Moreover, if there is more than one transaction between you and a customer, be diligent about enforcing the interest provision in accordance with the payment due date.

3. Forum Selection Clause

A forum selection clause dictates the place where a legal action will be held if a lawsuit must be filed. For example, “The parties agree that any lawsuit arising out of or relating to this contract shall be filed in the District Court for the City and County of Denver, Colorado.”  Such a provision is particularly useful if customers live far away or even outside of Colorado. For example, if you are a retailer selling t-shirts online to a buyer in Texas and the buyer does not pay his or her invoice, without a forum selection clause you could be required to file a lawsuit in Texas to assert a collections action because that buyer has little to no connection with the State of Colorado. A forum selection clause prohibits the defaulting customer from claiming Colorado courts lack jurisdiction or that Denver is too far away to defend a lawsuit. It also allows for predictability in that you know where any collection action will take place.

4. Signature Line

A signed contract is evidence that the customer has agreed to the terms set forth on the document (e.g., the quantity or price of the goods or services; the provisions set forth above, etc.). Moreover, a signed contract is clear evidence of an enforceable agreement against a debtor. As a general rule, the less room for any factual dispute in a collection action, the shorter and less expensive the lawsuit will be.

Instead of a signature line, you could also explore a “clickwrap” agreement. This is an agreement which requires the user on an electronic device such as a phone or a computer to indicate their agreement to contractual terms and conditions by “clicking” on a dialog box before proceeding with a transaction. These agreements are increasingly common and have been routinely upheld as enforceable.[iv] In this way, before an order is processed, you can require the customer to create an “account” online that includes a clickwrap agreement containing contractual terms such as those outlined above (attorney fees, interest, and forum selection). 


Adding these basic terms to your contracts may cause relatively minor inconvenience in reformatting your documents, but it could have a huge payoff for you.  At Proctor Brant, we had a situation where a moderately sized, family-owned distribution company was forced to sue another business for payment of an outstanding invoice. After a week-long jury trial and almost 14 months after the outstanding invoice was due, the jury awarded our client the amounts owing on the invoice, along with interest, costs, and attorney fees. The additional amounts collectable by virtue of interest, attorney fees, and costs alone exceeded $150,000.

At Proctor Brant, we can help you create business agreements that are particularly suited to your industry and needs. Also, if you have any questions concerning how to pursue overdue invoices or accounts receivable, please feel free to contact me or any of the other attorneys at Proctor Brant.


[i] C.R.S. § 4-2-201

[ii] C.R.S. § 5-12-101

[iii] C.R.S. § 5-12-103

[iv] Vernon v. Qwest Communications Intern. Inc. 925 F.Supp. 2d 1185, 1191 (D. Colo. 2013).