Alabama Appellate Court Rules on Enforceability of Invoice Payment Terms

Posted on April 28, 2009

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Small business will often note on an invoice that additional fees will be charged for late payment, and businesses often include provisions regarding attorneys’ fees on invoices should a collection company be needed to collect payment. But according to a recent ruling from the Alabama Court of Civil Appeals (Whorton v. Bruce, No. 2070501 (Ala. Civ. App. Feb. 20, 2009)) such invoice provisions mean nothing in legal terms.

The court reversed a civil court judgment, which had ruled in favor of a flooring installer and demanded the client pay the remaining balance of her invoice, late charges and attorney fees as it was noted on the invoice that these would be charged upon failure to pay. However, the appeals court determined that since the customer had not agreed to the late charges and additional fees noted on the invoice, she would not have to pay anything beyond the initial remaining balance.

This decision goes against the grain for Alabama courts, which have been extremely adamant in enforcing contracts of any kind. And it might mean your business needs to take a look at the way it handles contracts and invoicing. Much like a typical small service organization, the business in this case had entered into an oral agreement with the customer for work at an agreed upon price. There was no written contract up front that might have included notes about payment terms.

If your business is in the habit of moving forward with work without a written contract that covers payment terms, it may be time to rethink your approach. Be careful, though, not to overcompensate to the point that your contract might scare away business. A simple contract that includes agreed upon work, price estimate with applicable variances and payment terms should be sufficient. Use the invoice as a reminder of payment terms, but don’t count on terms included in the bill to help you in court.

Mike Goodrich, Goodrich Law Firm, LLC

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