A common issue for startups and small businesses is what to do if a client or customer refuses to pay the quoted price? Below, we set out a process to resolve these disputes.
1. Does the quote form a legally binding offer?
Can a quote constitute a legally binding offer? The courts have decided that yes it can (Megalift v Terminals  NSWSC 324).
The issues to consider include:
– What was the purpose of the quote provided? If it was for an example or budgeting purposes, then it’s less likely to be binding.
– In what context did the parties use the word ‘quotation’? Were there surrounding terms that indicated parties must reach an agreement rather than continue negotiating?
– Did the quote provide fixed prices or estimates? If fixed prices are listed, it’s likely to be an enforceable quote. Estimates may also be binding, especially when commercial negotiations around them have been over an extended timeframe.
In most instances, a quote will be legally binding and may form part of a contract. So, it will be enforceable in attempting to recover any discrepancies in the price quoted and costs paid in return.
2. What are your options for recovery?
The best course of action is first to approach the other party (debtor) to try to resolve the matter directly with them. You can seek to understand if there is an issue with the product or service from the client’s perspective. This is a cost-effective strategy and often leads to a mutually beneficial outcome.
Letter of Demand:
A letter of demand is a formal way to claim the outstanding amount quoted. It entails listing the details around the outstanding sum, the expected timeframe for payment and your suggested method of payment, such as your businesses bank account details. You may include a statement that you will proceed with legal action if the other party fails to pay the outstanding amount by a specific date.
If both parties do not reach an agreement, they may consider mediation. The process involves a mediator, who assists in settling a dispute and makes a recommended outcome, which the parties can choose whether to accept. Legal action may be necessary if this fails or if the debtor does not attend mediation.
Parties should generally only consider litigation as a last resort. To commence legal action, you need to choose the correct court and follow their process. The first step is usually a statement of claim form. In NSW, claims for up to $10,000 are heard in the small claims division of the Local Court. Claims from $10,000 to $100,000 (or $120,000 in limited circumstances) are heard in the general division of the Local Court. Amounts above $100,000 are usually heard in the District or Supreme Court. If the defendant admits to the debt, the court can then compel them to repay costs and the matter will be resolved at that point. If not, a pre-trial review will be ordered, and this has several possible outcomes:
1. The case will settle;
2. The court will order costs; or
3. The case will go to a hearing where it will be decided on the facts whether a debt is owed.
If a debtor refuses to repay the full amount quoted, you should carefully consider the next steps. A good first step is to contact the client to understand if there is an issue with the product or service from the client’s perspective. Then, consider if you can negotiate with the client, for example can you agree on a payment plan. To help manage this issue, businesses should expressly state, on the quote, that the quote (including the price) has legal effect if accepted.
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