What to Do When a Customer Refuses to Pay
Collections, Liens, and Lawsuits in Arkansas
Gregory Law Firm • July 2026 • Northwest Arkansas
Collections in Arkansas follow a predictable arc. Start with internal collection calls and a clear statement of account. If those fail, send a written demand letter that sets a final deadline. Claims of $5,000 or less can go to Arkansas small claims court. Claims above that threshold go to district court (up to $25,000) or circuit court. Contractors should consider a materialmen's or mechanic's lien within the statutory deadline. The statute of limitations for a written contract is generally five years; for an open account, three years. A clean paper trail and a tight invoice template significantly improve the odds of collection at every step.
Why Non-Payment Is the Most Common Legal Issue for Arkansas Small Businesses
For most Arkansas small businesses, customer non-payment is the most common legal issue they will ever face — and the one most often handled badly. Owners either chase too softly for too long, or escalate to a lawsuit before easier remedies have been exhausted. The right answer depends on the specifics of the debt, the customer, and the documentation. This guide walks through the practical timeline from first missed invoice through judgment and collection.
Phase One: Internal Collections — Day 1 to Day 60
The first 60 days after an invoice goes past due are still the easy collection window. Most legitimately past-due invoices in this window are caused by something other than refusal to pay: the invoice was not received, the approver is on vacation, the bookkeeper is behind, or the customer has temporary cash flow issues. Treating the matter as a refusal too early can damage an otherwise fine customer relationship.
Day 1
Automated polite reminder sent to the customer.
Day 15
Phone call from accounting to confirm receipt and check on status.
Day 30
Stronger letter or email referencing invoice, amount, and any late fee or interest accruing under your terms.
Day 45–60
Phone call from the owner or a senior person. Then a full statement of account requesting payment or a written payment plan.
By day 60, you have either been paid, received a credible payment commitment, or learned that the customer is not going to pay voluntarily. The next phase begins from there.
Phase Two: The Demand Letter — Day 60 to Day 90
The demand letter is the formal escalation. It puts the customer on written notice that the account is delinquent, that you are prepared to pursue legal remedies, and that they have a specific deadline to pay or contact you. A well-written demand letter documents your good-faith effort to resolve the matter, triggers any prejudgment interest or attorneys fees clauses in your contract, and gives the customer a clear path to comply.
What to Include
Full account history (dates of work, invoice amounts, payments received, balance due), reference to the contract or terms of service, a clear payment deadline of 10–30 days, and consequences of non-payment.
Attorney Letterhead Advantage
There is no Arkansas law requiring an attorney to write a demand letter for a commercial debt. However, a letter on attorney letterhead often produces a faster response because it signals the matter has progressed beyond internal collections. The cost is modest compared to the leverage it produces.
FDCPA Note
The federal FDCPA and Arkansas's Fair Debt Collection Practices Act regulate debt collectors, not businesses collecting their own commercial debts. Still, basic civility — no threats, no calls at unreasonable hours, no contacting third parties to embarrass the debtor — is required by common law and good practice.
Phase Three: Pre-Lawsuit Decisions
If the demand letter does not produce payment, you face a choice. The key factors that drive the decision include:
Amount Owed & Venue
Claims of $5,000 or less go to small claims. Up to $25,000 goes to district court. Above $25,000 or complex claims go to circuit court. Each venue has different procedures, costs, and timelines.
Strength of Documentation
A signed contract, clear scope of work, signed delivery receipts, invoices that match the contract, and a clean payment history are gold. A handshake deal, vague invoices, and disputed work scope are the opposite. Honest assessment must happen before spending money on litigation.
Customer's Ability to Pay
A judgment against a customer with no assets, no income, and no business presence is sometimes worth less than the cost of obtaining it. Do basic diligence on whether the customer can actually pay if you win.
Statute of Limitations
Arkansas has a five-year statute of limitations for written contracts and a three-year statute for open accounts and oral contracts. A claim approaching the deadline must be filed in time, regardless of other factors.
Phase Four: Small Claims, District Court, and Circuit Court
Small Claims Court (≤$5,000)
Designed to be accessible to non-lawyers. Filing fees are modest and the timeline from filing to hearing is typically 30–90 days. Procedure is informal, but a business entity generally needs to be represented by counsel in formal proceedings.
District Court ($5,000–$25,000)
Procedure is more formal, attorneys are routinely involved, and the timeline can extend to six months or longer depending on the docket and defenses raised.
Circuit Court (>$25,000 or Complex Claims)
Appropriate for fraud claims, specific performance, multiple defendants, or any claim above $25,000. Procedure is the most formal, discovery is available, and timelines often run a year or more.
In each venue, the structure is the same: the plaintiff files a complaint, the defendant is served and has a deadline to answer, and if no answer is filed, the plaintiff can move for default judgment. If the defendant answers, the case proceeds to settlement, hearing, or trial.
Phase Five: Mechanic's and Materialmen's Liens for Contractors
For contractors, subcontractors, and material suppliers on Arkansas construction projects, the materialmen's or mechanic's lien is a powerful collection tool that exists in addition to ordinary contract remedies. Arkansas law allows a lien on the improved property for unpaid labor or materials, subject to specific notice and filing requirements.
Pre-Lien Notice
Pre-lien notice must be given to certain owners within set timeframes. Missing this step can eliminate lien rights entirely.
120-Day Filing Deadline
The lien must be filed with the circuit clerk in the county where the property is located within 120 days of the last labor or materials furnished (subject to current statutory requirements).
15-Month Foreclosure Deadline
The lien must be perfected by a foreclosure action filed within 15 months of the lien filing. Miss any deadline and the lien remedy is gone.
A properly filed lien is substantial leverage. The property owner generally cannot sell or refinance the improved property without dealing with the lien, which often produces payment from the owner, the general contractor, or the construction lender. Lien rights are commonly lost through inattention — a calendar system tracking lien deadlines for every project is essential.
Phase Six: Collecting on a Judgment
A judgment in your favor is not money in the bank. It is the legal right to collect — but the collection still has to happen. Arkansas provides several tools to enforce a judgment.
Wage Garnishment
Allows the creditor to garnish the debtor's wages, subject to federal and state limits. Effective for individual debtors or sole proprietors with identifiable wages; generally not relevant for business debtors.
Bank Account Garnishment
A writ of garnishment reaches funds held by the debtor in a financial institution. The challenge is identifying the debtor's bank and timing the garnishment to catch available funds.
Judgment Lien on Real Estate
Obtained by recording the judgment with the circuit clerk in the county where the debtor owns real property. The lien attaches to the debtor's real estate and must be paid before the debtor can sell or refinance — often the most patient and effective tool.
Post-Judgment Discovery
Debtor examinations allow the creditor to compel the debtor to answer questions under oath about assets, income, and accounts. This information drives the choice of collection tool.
Don't Let Non-Payment Hurt Your Business
Gregory Law Firm helps Arkansas small businesses build the contracts, documentation habits, and collection strategies that make recovery possible. Whether you need a demand letter, a mechanic's lien, or representation in district or circuit court, we can help you pursue what you are owed.
