What to do when a Local State entity has not paid old invoices?

5 months ago

Being a small business we have changed our accounting practices. During a audit this year we found that we had outstanding invoices from a local public school district since 2016 that were not paid. Invoices were supplied to them in a timely fashion, but no payment was made. These contracts were closed by the district now. Are we still able to collect on these past due invoices?

Senior Legal Associate Levelset

That’s an interesting question, and I’m sorry to hear that you’ve gone unpaid here. Generally, it appears that California has a 4-year statute of limitations on written contracts. Meaning, if more than 4 years pass after an event occurs giving rise to legal liability under that contract, then the injured party will not be able to pursue a lawsuit to recover payment.

So, if nonpayment occurred within the past 4 years, the unpaid party can potentially seek out legal remedies – like pursuing a breach of contract action – in order to recover payment. Further, California has very strict prompt payment laws. In California, prime contractors must be paid within 30 days of invoicing for that work, unless there’s some specific issue for which payment is being withheld. And, if payment isn’t made on time, a contractor may be entitled to 2% interest per month. You can learn more about the California prompt payment laws here: California Prompt Payment Guide and FAQs.

Of course, before taking official action, if there’s time, it’d probably be worthwhile to reach out to the public entity and try and resolve the dispute before taking official action. And, even if discussing the matter doesn’t get very far, sending an official demand for payment (like with an attorney demand letter threatening legal action) could lead to payment without the need for suit, too.

Ultimately, though, if deadlines are closing in and action is needed, it’d probably be wise to consult a local construction attorney. They’ll be able to look at all the surrounding documentation and circumstances – including any unpaid invoices and the contract for construction – and advise on how best to proceed based on your specific circumstances.

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