Scope Delivered, Payment Denied: When Service Providers Have to Fight for What’s Due

In the service sector - especially among digital, design, and consulting agencies - the most common arbitration I handle is not about poor work.

It’s about payment defaults after scope delivery.

Take this real-world scenario: A branding agency delivered a pitch deck, brand guide, and digital collateral to a funded startup. The founder acknowledged receipt, but delayed the final milestone payment for over 3 months, citing internal cashflow prioritisation.

The agency escalated.

By then, frustration had festered, and the only path forward was legal.

Here’s what typically goes wrong:

1. Ambiguous Milestones: The contract doesn’t define what “completion” looks like. So the client keeps moving the goalposts.

2. Weak Termination Clauses: Most service contracts are silent on what happens when payments are delayed. There’s no clear ‘off-ramp’ or compensation clause for default.

3. No ADR Clause: If the agreement doesn’t have an arbitration clause or a mediation path, enforcing the contract takes longer and gets costlier.

4. Personal Involvement in Resolution: Many founders deal with agencies or service providers directly, making the dispute personal and emotional rather than business-like.

Case Reflection

In one case, the entire dispute was over Rs 3.5 lakhs - an amount smaller than the legal costs that the provider was about to incur. The legal representation value was in de-escalating it, rewriting the closure clause, and obtaining a partial release of dues by reframing it as “handover fee.”

The founder didn’t want court proceedings. The provider didn’t want to spend 8 months waiting. A mediated exit worked better.

The Larger Pattern

• In infra contracts, these disputes are often between subcontractors and principal contractors.

• In startup ecosystems, it’s advisors, consultants, or boutique firms who face defaults after IP delivery.

• It’s rarely about whether work was done. It’s about whether it was valued enough to be paid for.

How to Avoid This:

1. Clearly define scope and deliverables in bullets.

2. Define completion triggers tied to tangible outcomes.

3. Set a default clause, including late payment interest, right to retain IP, and termination triggers.

4. Include arbitration or tiered ADR in your standard contracts.