How to Recover Money From a Client Who Is Not Paying

How do you get paid by a client who has stopped paying?

There are roughly five moves. Work out why the client isn't paying. Secure written proof that the work was done and accepted. Make one clear demand in writing. Have a lawyer send a legal notice. Then go to Section 12A mediation followed by a commercial suit, or to the MSME Facilitation Council if you qualify. Each move costs more than the one before, so make each one count. Plenty of disputes end at the notice or in mediation. But only when the client believes the next step really is coming.

Order matters more than people think. We see service businesses fire off a legal notice while their proof is still spread across three people's inboxes. We also see the opposite, six months of polite reminders while the limitation clock quietly runs. Neither helps you. What follows assumes you're still working with the client, or stopped recently. That's the usual position for an agency, a consultant, an IT vendor or a contractor with one account that won't clear.

One thing before we start. When a client doesn't pay, it's almost always a civil dispute, not a crime. A police complaint is tempting. But cheating under Section 318 of the Bharatiya Nyaya Sanhita, 2023 needs dishonest intention at the time the deal was struck, and courts recognise a criminal complaint dressed up as debt collection very quickly. A bounced cheque is a different story. We come to it below.

Why isn't the client paying? Work that out first

Non-paying clients usually sit in one of three groups, and each needs different handling. Some can't pay. Cash is tight, their own customers are late, or the business is shrinking. Some say they won't pay because of a dispute about the work, which is sometimes real and sometimes invented the day the invoice landed. And some are simply delaying, because delay costs them nothing. They'll pay. Only when made to.

Small signs tell you which one you've got. The client who can't pay still picks up the phone, gives reasons and offers something, even a small amount. The client building a dispute starts sending long emails about quality after the invoice, never before. The one playing for time goes silent with your accounts team but keeps your project manager busy with fresh requests. Go back over the last three months of mail with this in mind. Then decide your tone.

What you do next follows from that. If the client genuinely can't pay, a written instalment plan with a proper default clause may get you more than a suit would, and our guide on a debtor who keeps promising to pay deals with exactly that. If the client is building a dispute, evidence comes first. If it's only delay, a well-drafted notice followed quickly by mediation is often enough.

Get the paper trail together while you still can

A service claim is harder to prove than a goods claim. There's no lorry receipt and no goods receipt note. Your proof is the trail of messages around the work: the brief, the scope email, change requests, delivery emails, the client's approval, the go-live mail, and signs that the client is using what you built. Collect it now, while you can still get into the shared drives, the project tool and the client threads. Once things turn sour, folders get locked. Project staff move on.

Make a table with one line per invoice. Put in the invoice number and date, the work it covers, the purchase order or approval behind it, the email or sign-off showing completion, and what's been paid against it. Check it against your ledger and your bank statements. You'll often find something off, like an advance nobody adjusted or a TDS deduction that was never reconciled. Fix it in your own books before the client's lawyer finds it in court.

Emails and chats are good evidence if you handle them properly. Export whole threads with headers, not screenshots of single messages. Export WhatsApp chats in full from the phone that holds them. When you file, these need a certificate under Section 63 of the Bharatiya Sakshya Adhiniyam, 2023, which replaced the old Section 65B certificate from 1 July 2024. Our guide on proving emails and WhatsApp chats in a commercial court shows the format.

In the client files Advocate B.K. Singh sees, the most useful document often isn't the invoice. It's some ordinary email from the client's side saying the site is live, or asking about the next phase. That's acceptance, in the client's own words. Hard to argue with.

Can you stop work or hold back what you've made?

Often you can. Read your contract first, though. A lot of service agreements have a suspension clause that lets you pause work once invoices stay unpaid for a set period after notice. If yours has one, follow it to the letter: the notice it asks for, in the form it asks for, with a copy kept. If there's no such clause, the Indian Contract Act, 1872 generally lets you hold back your own further performance where the other side hasn't performed a reciprocal promise that fell due first. A missed milestone payment is the usual example. Write to the client before you stop. Name the unpaid invoices and the date work will pause.

Holding back deliverables is trickier. Not starting the next phase is usually fine. Hanging on to something the client already owns, or data that belongs to the client, is risky. Say your contract passes the intellectual property to the client as the work is created, or you're sitting on their customer data or login credentials. Refuse to hand those over and you can go from creditor to defendant, facing a counter claim or even an injunction application. If the contract says ownership passes only on full payment, you're on firmer ground. Even then, don't switch off a live system without legal advice.

What usually works is a middle path. Keep the work going on a reduced scope, stop all new requests, and say in writing that anything further depends on specified invoices being cleared. Nobody can accuse you of walking away. And the client knows the free credit is over.

One firm email from you before the lawyer's notice

Send one clear demand yourself before any legal notice goes. Attach a statement of account. List the unpaid invoices with dates, mention the approvals or sign-offs, give a date for payment (seven to ten days is normal), and say you'll take legal steps without further reference if the money doesn't come. Keep it short. Keep the anger out of it. Don't say you'd accept less unless you mean it, and if you do want to offer a discount, mark that part without prejudice.

Ask the client to confirm the balance. Even a one-line reply saying the figure's right and will be paid counts as an acknowledgment. Under Section 18 of the Limitation Act, 1963 it can restart the three-year period, as long as it comes before the period runs out. It also kills the later argument that the amount was disputed all along.

Can't tell if you've reached the point where reminders should stop? Our guide on when to stop calling and send a legal notice goes through the signs.

A legal notice the client won't ignore

A legal notice is a formal demand an advocate sends on your behalf. No law makes it compulsory before an ordinary recovery suit against a private client. (Suing the government needs a notice under Section 80 CPC, but that's a separate matter.) We'd still send one. It fixes the amount and the date you claim interest from. It puts your version on record early. And it gives the client one last chance to pay before both sides start spending real money.

A good notice gets the parties' names right and tells the story of the engagement briefly. It lists the invoices and amounts, points to the client's approvals, claims interest at the contract rate or under the MSMED Act if you qualify, gives about fifteen days, and says you'll start Section 12A mediation and then a commercial suit. Send it by speed post and email to the registered office and to the people you actually dealt with. Our page on legal notices for recovering business dues covers the contents in more detail.

Then read the reply properly. A client who writes back with a detailed complaint about the work has just shown you its defence, and your lawyer can start preparing for it. A reply full of general denials tells you something too. And a client who doesn't reply at all has thrown away the chance to say later that it objected at the time.

Section 12A mediation, the step service firms forget

If the amount is Rs 3 lakh or more and the dispute is commercial (nearly every business-to-business service contract is), Section 12A of the Commercial Courts Act, 2015 says you must try pre-institution mediation before you file. The only way round it is a suit that genuinely needs urgent interim relief. In Patil Automation v. Rakheja Engineers (2022) the Supreme Court held the requirement mandatory for suits filed from 20 August 2022. Courts have been rejecting plaints filed without it ever since.

In Delhi you go through the District Legal Services Authority, or the Delhi High Court Legal Services Committee if the suit will be filed in the High Court. You file an application with a fee of Rs 1,000 and the client is invited. Under the 2018 Rules, mediation should be over within three months, and both sides can agree to two more. If the client doesn't show up, you get a non-starter report and can file your suit. If you settle, the signed settlement has the same status as an arbitral award. You can enforce it like a decree.

Don't treat it as a box to tick. Clients who ignored your notice often do turn up for mediation, because it's official and their own lawyer has told them a suit comes next. Walk in knowing your minimum figure. Have a realistic instalment plan ready. The procedure is set out on our page on mandatory mediation before a commercial suit.

The provisions you'll actually rely on

Summary suit or regular suit?

A summary suit under Order XXXVII CPC is quicker, because the client can't defend at all without the court's permission. It suits a written contract or signed work order with a fixed price, a written acknowledgment of the amount from the client, or a cheque. The tests come from the Supreme Court's decision in IDBI Trusteeship Services v. Hubtown (2016). If the defence raises a real triable issue, leave is granted, sometimes on condition of a deposit. If it's frivolous, leave is refused. A decree follows.

Service claims fit a summary suit less often than goods claims do, because the client nearly always argues about quality, scope or delay. Those arguments can look triable. A time-and-materials engagement with monthly invoices the client approved fits better than a fixed-price project with open change requests. People often ask whether invoices alone will do. Our guide on a summary suit on invoices alone answers that.

Where the facts really will be fought over, you file a regular commercial suit. It's slower. Still, the commercial court rules move it along faster than an old-style civil suit. The written statement has to come within 120 days at the most, there's a case management hearing under Order XV-A CPC, and you can ask for summary judgment under Order XIII-A where the defence has no real prospect of success. How we usually choose between the two is explained on our unpaid invoice recovery page.

Micro or small enterprise? Look at the MSME Council

If you were registered on the Udyam portal as a micro or small enterprise when you took on the work, the MSMED Act, 2006 gives you real teeth against a client who pays late. The client has to pay within the agreed period, which can't be longer than 45 days from acceptance of the services. After that, interest runs at three times the bank rate, compounded monthly. The client can't contract out of it. You file a reference with the MSME Facilitation Council of the state you're in, usually through the MSME Samadhaan portal. The Council tries conciliation first. If that fails, it decides the dispute as arbitrator or sends it to an arbitration centre.

It covers services, not just goods. A software developer, a design studio or a maintenance contractor registered as micro or small can use it, as the arbitrationlawyer.in guide on service provider MSMEs and the Facilitation Council explains. And if the client challenges the Council's award in court, Section 19 makes it deposit 75 percent of the award first. That concentrates minds.

Check two things before you go this way. One, the date of your Udyam registration against the date of the engagement. Clients object routinely when registration came later. Two, your category. The delayed payment remedies are only for micro and small suppliers, so a medium enterprise can't use them.

When the client company itself is in trouble

If the client is a company that's stopped paying everybody, a recovery suit may just put you in a queue. There are two other tools. If Rs 1 crore or more is unpaid and no dispute was raised before your demand, you can serve a demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 and then apply to the National Company Law Tribunal under Section 9. In Mobilox Innovations v. Kirusa Software (2017) the Supreme Court held that a plausible pre-existing dispute is enough to defeat that application. So it only works for clean, undisputed dues. The threat of insolvency often gets you paid. But it's a collective process, not a private collection tool.

If the client gave you cheques that bounced, a complaint under Section 138 of the Negotiable Instruments Act, 1881 can run alongside your civil claim. The deadlines are strict. Notice within 30 days of the return memo, and the complaint within one month after the 15-day payment period ends. Our guide on when insolvency beats a recovery suit weighs the options.

What Advocate B.K. Singh tells clients in this spot is simple. Look up the company's recent filings and registered charges before you choose. If a bank already holds a charge over everything it owns, an unsecured service vendor gets paid last in any process. An early negotiated settlement may be the most you can realistically get.

From overdue invoice to filed suit, in order

1. Get the numbers straight

   Make an invoice-wise statement and match it to your ledger, bank receipts and TDS records. Note the date of the oldest unpaid invoice. Note any acknowledgment or part payment since.

2. Pull out the proof of work

   Export the email threads, chats, approvals and sign-offs showing the work was done and accepted. Save the project tool records too, and anything showing the client is using the work.

3. Send your own firm demand

   Email a statement of account with a payment date and ask the client to confirm the balance. Pause new work if the contract lets you.

4. Have a lawyer send notice

   An advocate sends a notice setting out the claim and interest, with roughly 15 days to pay. Read any reply closely. It's a preview of the defence.

5. Pick the forum

   It's Section 12A mediation followed by a suit, or an MSME Council reference if you're a registered micro or small enterprise. A cheque bounce complaint or insolvency comes in only where the facts fit.

6. Take mediation seriously

   File the application and go in with a settlement range. If you settle, make sure the terms have dates, amounts and a default clause.

7. File with every document

   If mediation fails, file a summary or regular commercial suit with all documents disclosed under Order XI CPC, the statement of truth and the mediation report. If the client seems to be moving assets, ask about attachment before judgment.

How long each stage takes, and what it costs

Papers to pull together before you claim

• The signed agreement, statement of work or work order. If there's none, the email where the client accepted your proposal
• Purchase orders, or the approval email for each phase or month of work
• Every invoice with GST details, and the date each one was sent
• Emails, chats and project tool entries showing delivery, approval, go-live, or the client using the work
• Change requests, and the client's OK on the extra work and the extra cost
• Your ledger for this client, bank statements, and TDS certificates or Form 26AS entries
• Your reminders and their replies, plus any complaint about the work and how you answered it
• Anything where they confirmed the balance, promised to pay, paid part, or handed over a cheque
• Your Udyam registration certificate, if you're micro or small
• Company or firm papers, and a board resolution or authority letter for whoever signs

Where do you file against the client?

Section 20 CPC lets you sue where the client lives or carries on business, or where the cause of action arose, wholly or in part. For a service contract that usually means where the contract was concluded, where you did the work and where payment was due. A Delhi agency working remotely for a Bengaluru client may be able to argue for either city. Look for an exclusive jurisdiction clause in your contract. Courts generally enforce one if the chosen court would have had jurisdiction anyway.

In Delhi, commercial suits up to Rs 2 crore go to the District Judge (Commercial Court) in whichever district has territorial jurisdiction, which could mean Saket, Tis Hazari, Karkardooma, Rohini, Dwarka or Patiala House. Above Rs 2 crore, it's the Commercial Division of the Delhi High Court. Check the current limit, because a change has been proposed. In Noida, Ghaziabad, Gurugram and Faridabad, the court designated as the district's Commercial Court hears these suits. MSME Council references go to the Council in the supplier's own state. That's a real advantage when the client is far away.

Our page on which court hears your commercial case explains the value and territory rules across Delhi NCR.

Mistakes we see that weaken a claim

• Cashing a cheque marked full and final. Bank a reduced cheque sent as full and final settlement without protest, and the client will say you accepted the lower figure. Write back the same day reserving your rights.
• Handing out credit notes to keep things friendly. That casual credit note from the negotiation becomes the client's proof that your original invoice was wrong.
• Being polite while limitation runs. Three years go quicker than you'd think in a long relationship with dozens of invoices. Keep an eye on the oldest unpaid one.
• Calling the client out online. Post that they're a defaulter and you may face a defamation claim. Settlement gets harder too.
• Losing the chats. People change phones. Staff leave. Export the important threads the moment payment starts looking doubtful.
• Leaving complaints unanswered. Even a weak quality complaint looks far stronger in court if you never replied to it at the time.
• Skipping mediation. File without Section 12A mediation, and without a genuine need for urgent relief, and the plaint can be rejected at the very start.

What to do this week

Reconcile the client's account and list the unpaid invoices with dates. Export the approval emails and chats. Look through your contract for a suspension clause, an interest clause and a jurisdiction clause, and check your Udyam registration date. Then send one clear written demand and ask the client to confirm the balance. Nothing within ten days, no payment and no confirmation? Then it's time for a legal notice. What we do from there is on our unpaid invoice recovery page.

If you'd like someone to go through your papers before the notice goes, or want to hear when the law on recovery and MSME claims changes, contact Advocate B.K. Singh through our contact page.