To collect a debt from a client, work through the steps in order: assemble your documentation, send a formal demand letter, try to negotiate a payment plan or reduced settlement, and if none of that produces payment, escalate to a collection agency, a collections attorney, or a small claims lawsuit. Winning in court gives you the legal tools — wage garnishment, bank levies, and debtor’s examinations — to actually get the money.
Which step you start with depends on how much is owed, how old the debt is, and whether your client is a business or a consumer.
Get Your Paperwork in Order First
Before you contact the client again, pull together everything that proves the debt exists and what the client agreed to pay. A signed contract or service agreement is the strongest evidence. It should spell out the scope of work, the agreed rate, payment deadlines, and any late-fee provisions. No formal contract? Gather the written communications that confirm the arrangement instead: emails, text messages, purchase orders.
Then organize your invoices chronologically. Each one should show what you delivered, the amount billed, and the date payment was due. Pair the invoices with a communication log: timestamps of phone calls, copies of emails, and records of any partial payments. That timeline becomes the backbone of every step that follows, whether you’re writing a demand letter, briefing a collection agency, or presenting your case to a judge.
Send a Formal Demand Letter
A demand letter is your first formal step, and it often resolves the matter without further escalation. Include:
- The total amount due, including any interest or late fees your contract authorizes.
- The specific invoice numbers, dates, and contract references that establish the obligation.
- A firm payment deadline, typically 15 to 30 days from the date of the letter.
- Payment instructions: accepted methods such as wire transfer, check, or an online portal.
- A clear statement of what happens next if the deadline passes — collection agency, attorney, or lawsuit.
Keep the tone professional. Threatening legal action you don’t intend to pursue, or using aggressive language, can undermine your credibility and in some situations create legal exposure. Courts generally view a well-documented demand letter favorably because it shows you gave the client a reasonable chance to pay before escalating.
Try to Negotiate a Payment Plan or Settlement
If the client responds but says they can’t pay the full balance at once, negotiating is usually more practical than jumping straight to collections or court. A structured installment plan lets you recover the debt without paying agency fees or filing costs.
When full recovery looks unlikely, a lump-sum settlement for less than the total owed can still be the best outcome. Creditors sometimes accept 50 to 80 percent of the original balance, particularly for debts that have been outstanding for several months. Whatever you agree to, put it in writing. The agreement should state the reduced amount or installment schedule, the deadline for each payment, and what happens on default — typically, the full remaining balance becomes immediately due.
Know Whether the FDCPA Applies to You
If your client is a business, the federal Fair Debt Collection Practices Act does not apply. The FDCPA defines a covered “debt” as an obligation arising from a transaction that was primarily for personal, family, or household purposes.1Office of the Law Revision Counsel. 15 U.S. Code 1692a – Definitions Commercial debts between businesses fall outside that definition entirely.
Even for consumer debts, the FDCPA generally does not regulate original creditors collecting their own debts. It targets third-party debt collectors — people or companies whose principal business is collecting debts owed to someone else.2Federal Trade Commission. Fair Debt Collection Practices Act One important exception: if you collect your own debts using a different name that implies a third party is involved, you can be treated as a debt collector under the law.3eCFR. 12 CFR Part 1006 – Debt Collection Practices (Regulation F)
Even where the FDCPA doesn’t directly bind you, many states have their own unfair or deceptive trade practices laws that reach original creditors. As a practical matter, hold yourself to professional communication standards anyway: no calls at unreasonable hours, no misleading threats, no contact after someone requests in writing that you stop.
Hire a Collection Agency
When your own outreach and negotiation fail, a collection agency takes over debtor contact and recovery work. You submit your documentation so the agency can decide whether the claim is worth pursuing. If they accept it, you sign an agreement setting out the fee structure.
Most agencies work on contingency: they charge a percentage of what they successfully recover rather than billing you upfront. Fees typically run 25 to 50 percent of the collected amount, with older and smaller debts commanding higher percentages.4U.S. Chamber of Commerce. What Is a Debt Collection Agency, and When Do You Need One? Some agencies offer flat-fee arrangements for newer debts that are easier to collect.
Once the agency takes the account, they handle debtor communication and use tools like skip-tracing software to locate clients who have gone silent. A third-party agency collecting consumer debts must comply with the FDCPA and Regulation F, including limits on call frequency (no more than seven calls within seven consecutive days per debt) and restrictions on contacting consumers before 8 a.m. or after 9 p.m.3eCFR. 12 CFR Part 1006 – Debt Collection Practices (Regulation F)
Bring in a Collections Attorney
For larger debts, or where an agency hasn’t succeeded, a collections attorney adds legal weight. A lawyer’s demand letter on firm letterhead often prompts payment from clients who ignored earlier attempts. If the debt is big enough, the attorney can file in regular civil court rather than small claims, which has dollar limits that may not cover your full claim.
Collections attorneys typically work on contingency or charge hourly rates depending on the size and complexity of the debt. Before hiring one, ask about the fee structure, their track record with similar claims, and whether you can recover attorney fees from the debtor. Some contracts include an attorney-fee provision that shifts that cost to the losing party.
File a Small Claims Lawsuit
Small claims court is a streamlined, relatively inexpensive way to get a court judgment. It’s designed for people without lawyers, so the rules are simpler than in regular civil court. The main limitation is the dollar cap: depending on your state, you can seek between $2,500 and $25,000 in small claims. If the debt exceeds your state’s limit, you’ll need to file in a higher court, usually with an attorney.
Filing and Serving the Lawsuit
To start a case, visit the clerk’s office at your local courthouse or use an online filing portal if one exists. You’ll fill out a statement of claim describing who owes you money, how much, and why. Filing fees vary by jurisdiction and the amount claimed, but generally fall between $15 and $150. After the clerk processes your paperwork, you must formally notify the debtor of the lawsuit through service of process. A professional process server or local law enforcement officer delivers the papers, typically for a fee of $20 to $100.
The Hearing
Courts usually schedule hearings within 30 to 90 days of filing. Some jurisdictions require mediation before the case goes before a judge. Use the wait to organize your evidence. Bring at least three copies of every document — one for the judge, one for the opposing party, one for the clerk. Arrange your materials chronologically: the contract, the invoices, the demand letter, any responses from the client.
Present your evidence calmly and stick to the facts: what was agreed, what was delivered, what was billed, what remains unpaid. If the judge rules in your favor, you’ll receive a judgment for the outstanding balance.
Enforce the Judgment
Winning a judgment doesn’t automatically put money in your account. The court has declared that the debtor owes you a specific amount, but collecting it is on you. If the debtor doesn’t pay voluntarily, you have several enforcement tools.
Wage Garnishment
A wage garnishment directs the debtor’s employer to withhold part of each paycheck and send it to you. Federal law caps the amount at the lesser of 25 percent of the debtor’s disposable earnings for that week, or the amount by which weekly disposable earnings exceed 30 times the federal minimum wage (currently $7.25 per hour, making the protected amount $217.50 per week).5Office of the Law Revision Counsel. 15 USC 1673 – Restriction on Garnishment Some states set lower garnishment limits, so the debtor’s state of residence matters.
Bank Account Levy
A bank levy freezes and seizes money directly from the debtor’s account. You typically request a writ of execution from the court, then hand it to the local sheriff or a registered process server, who serves it on the debtor’s bank. The bank freezes the account when the notice arrives and, after a waiting period for the debtor to claim any exemptions, turns the funds over. You need to know where the debtor banks, which leads to the next tool.
Debtor’s Examination
If you don’t know what assets the debtor has, you can ask the court to order a debtor’s examination. The debtor appears in court or at a deposition and answers questions under oath about their income, bank accounts, real estate, and other property. That information lets you target the most effective enforcement method. A debtor who fails to appear can face contempt-of-court sanctions.
Don’t Miss the Statute of Limitations
Every state sets a deadline for filing a lawsuit to collect a debt. Once it passes, you lose the right to sue, even if the debtor clearly owes you money. For written contracts, the period in most states runs three to six years from the date payment was due, though some states allow as many as ten. Oral agreements, harder to prove, often carry shorter deadlines — as few as two years in some states.
The clock typically starts on the date payment was first missed, not the date you signed the contract. Certain acts by the debtor, such as making a partial payment or acknowledging the debt in writing, can restart the clock in some states. If you’re near the end of your limitation period, talk to an attorney before the deadline passes. Once it expires, the debtor has a complete defense.
If the Debt Is Truly Uncollectible
If you eventually conclude the debt can’t be recovered, there may be tax consequences depending on your accounting method.
Businesses that use the accrual method — recording income when earned, not when cash is received — can deduct unpaid client invoices as a bad debt in the year the debt becomes worthless. To qualify, you must show reasonable collection efforts and no realistic expectation of payment. You don’t need a court judgment, but you do need documentation. If you use the cash method, which most sole proprietors and small businesses do, you generally cannot take a bad debt deduction for unpaid invoices, because you never reported the income in the first place.6Internal Revenue Service. Topic No. 453, Bad Debt Deduction
If you formally cancel or forgive a debt of $600 or more, you may need to file Form 1099-C with the IRS.7Internal Revenue Service. Instructions for Forms 1099-A and 1099-C This applies primarily to financial institutions and businesses whose significant trade is lending money, but it can also apply if you decide to stop collection and write off the debt as a policy decision. The canceled amount may count as taxable income to the debtor. That tax impact can sometimes motivate a client to settle rather than have the full amount reported as forgiven.