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San Diego Business Law: Using an “Account Stated” to Ensure You Get Paid

We wrote recently about how San Diego and California businesses can use written contracts to help them get paid fully and paid in a timely fashion. In this article, we address how your business can create an “account stated” to help collect payments due.

San Diego Business Law: What is an Account Stated?

A San Diego business can create, for legal purposes, what is called an “account stated” by sending regular invoices to your customers. Once established, an account stated can be brought into court and, in general, your no-paying or slow-paying customer will not be able to challenge the amount due on the basis of non-performance, defective goods, etc.

An account stated requires that:

  • Regular invoices are sent — monthly, for example
  • Invoices state the amount due, including any interest and late charges
  • Invoices are in a series, each successive invoice references the previous invoice
  • Invoices keep a running tally of amounts due and amounts (if any) that are paid

If your customer pays fully or partially, then by law, your customer has “accepted” the account stated and any lawsuit will go more quickly. As noted, once established, an account stated cuts off various defenses or arguments that your customer might make in court.

San Diego Business Law: Elements of an Account Stated

Under California case law, an account stated is “an agreement, based on prior transactions between the parties, that the items of an account are true and that the balance struck is due and owing.” See Maggio, Inc. v. Neal, 196 Cal.App.3d 745 (Cal. App. 4th Dist. 1987). Moreover, if a creditor provides a statement/invoice to a customer/debtor and no reply is made in a reasonable time, California law implies an agreement by the customer/debtor that the account is correct as rendered.

The case of Zinn v. Fred R. Bright Co., 271 Cal.App.2d 597 (Cal.App. 1969), sets out the foregoing more particularly by requiring that three elements must be shown to establish an account stated:

  • Previous transactions between the parties establishing the relationship of debtor and creditor
  • An agreement between the parties, express or implied, on the amount due from the debtor to the creditor
  • A promise by the debtor, express or implied, to pay the amount due

As discussed above, it can be seen that the billing procedure satisfies these three elements. The repeated and periodic invoices establishes the first element. Any payment by your customer establishes, by implication, that your customer agrees that the amount stated is the correct amount that is due and owing, and also your customer’s implied agreement to pay the amount due and owing. Likewise, silence in response to the invoices will be seen by the courts as an implied agreement that the account stated is correct.

Obviously, any statements or emails or any other communications from the customer challenging or arguing about the invoices will take the invoices outside of the legal concept of “account stated.” See for example, Leighton v. Forster, 8 Cal. App. 5th 467 (Cal. App. 1st Dist. 2017). In that case, the court rejected a claim for account stated since the client had sent emails disputing the invoice and specifically stating she would not pay it.

San Diego Business Contracts: Contact San Diego Corporate Law Today

If you would like to discuss how to create an account stated or how to use your written business contracts to maximize your chances of getting paid and getting paid fully, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard has been named a “Rising Star” for 2015, 2016, and 2017 by Mr. Leonard can be reached at (858) 483-9200 or via email.

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Schedule a Consultation: 858.483.9200