To collect past due accounts, work a defined sequence: confirm the debt is still legally enforceable, pull your paperwork together, send written demands, negotiate if the customer will talk, hand the file to a collection agency if they won’t, and sue and enforce a judgment only when everything earlier has failed. Most balances get paid somewhere in the middle of that path. The businesses that recover consistently are the ones who document every step from the first missed invoice.
Confirm the Debt Is Still Legally Enforceable
Before you spend an hour or a dollar chasing an unpaid invoice, check your state’s statute of limitations for debt collection lawsuits. For written contracts, the filing deadline runs anywhere from three to ten years, with most states landing between three and six. The clock generally starts on the date payment first became overdue or the date of the last payment, whichever is later.
Two things can restart the clock in many states: a partial payment, even a small one, or a written acknowledgment of the balance signed by the debtor. Either can give you a fresh limitations window.
If the deadline has already passed, you can still ask for payment, but federal rules under Regulation F prohibit third-party debt collectors from suing or threatening to sue on time-barred debts.1Consumer Financial Protection Bureau. Debt Collection Rule (Regulation F) Knowing where you stand on this timeline changes what leverage you actually have.
Assemble the Documentation
Debt recovery runs on paperwork. Before you send a demand, gather the signed contract or credit agreement with its payment terms, itemized invoices for the goods or services provided, and proof of delivery or completion. That last piece matters more than most business owners expect. It eliminates the easiest defense a debtor has, which is claiming they never received what they were billed for.
Keep current contact information on file: mailing address, email, and phone. If the debtor disappears, that’s where skip tracing starts. Store everything for a given account in one place — the agreement, every invoice, delivery confirmations, and every piece of correspondence. When you eventually hand the file to an agency or a lawyer, a complete package means no scrambling.
Check that the numbers line up. Principal, any contractually permitted interest or late fees, and dates of service should match across your records. Discrepancies give the debtor grounds to dispute the amount and can unravel the whole effort.
Send Demand Letters and Log Every Contact
Your first collection tool is a written demand letter stating the amount owed, the original due date, and a deadline to pay or respond. Send it by certified mail with return receipt requested. Certified mail isn’t legally required when you’re collecting your own debts, but the return receipt proves the debtor got the letter, and that becomes useful evidence if you eventually sue.
A common cadence is a first demand around 30 days past due, a second at 60 days, and a final notice at 90 days stating your intention to refer the account to a collection agency or pursue legal action. Each letter runs a little more direct than the last. That escalating tone signals seriousness without tipping into harassment.
Log every attempt: date, method, outcome. Voicemails, emails, read receipts if you have them. The log does two things at once. It shows a court that you made good-faith efforts to resolve the matter privately, and it protects you against any later claim that you acted improperly.
Negotiate a Written Settlement
If the debtor responds but can’t pay in full, a negotiated settlement often recovers more money than a lawsuit, and faster. You have two basic options: a reduced lump sum to close the account, or a payment plan that collects the full amount over time.
Either way, put the agreement in writing before accepting any money. The settlement should spell out the total the debtor will pay, the schedule, what happens on a missed payment, and a clear statement that the debt is satisfied on completion. If a lawsuit is already pending, the agreement should say the case will be dismissed with prejudice — meaning you can’t refile on the same debt — once the terms are met.
For payment plans, build in a default clause. Many creditors include language stating that if the debtor misses a payment, the full remaining balance becomes immediately due. Without that, you’re back at square one each time a payment slips. A handshake deal with no written terms is worth almost nothing in court.
Hand It to a Collection Agency
When your own efforts stall, usually around 90 to 120 days past due, a professional collection agency is the next step. You transfer the documentation file and the agency takes over communications. Most agencies work on contingency, charging roughly 25 to 50 percent of what they recover. You pay nothing upfront, which limits your risk, but you’ll never see the full balance through this route.
Before you sign, verify the agency is licensed and bonded in the states where they’ll be collecting. Ask how they communicate with debtors, how often they’ll update you, and whether they carry errors-and-omissions insurance. An agency that can’t answer those questions clearly is one to skip.
The FDCPA Governs the Agency, Not You
One distinction trips up many business owners: the Fair Debt Collection Practices Act applies to third-party debt collectors, not to original creditors collecting their own debts. Under the statute, a debt collector is someone who regularly collects debts owed to another party.2Office of the Law Revision Counsel. 15 USC 1692a – Definitions Your own demand letters to your own customers aren’t covered. The moment you hire an outside agency, the FDCPA applies to that agency.
The FDCPA also only reaches consumer debts, meaning obligations incurred for personal, family, or household purposes. Business-to-business debts sit outside it, though state collection laws and general fraud statutes still apply.
For consumer debts, the agency must send the debtor a written validation notice within five days of first contact stating the amount owed, the creditor’s name, and the debtor’s right to dispute within 30 days.3Office of the Law Revision Counsel. 15 USC 1692g – Validation of Debts If the debtor disputes, the agency must pause collection until it verifies the debt. Pick an agency that follows these rules cleanly; violations can derail your recovery and drag the agency into its own litigation.4Office of the Law Revision Counsel. 15 USC 1692k – Civil Liability
Sue if Nothing Else Works
When demands, negotiation, and the agency have all failed, filing suit is what’s left. Start by choosing the right court. Small claims courts handle lower-value disputes with simplified procedures and no attorney requirement. Dollar limits vary widely, from $2,500 in a few states to $25,000 in others, with most sitting between $5,000 and $10,000. Above the small claims ceiling, you’ll file in civil court, which runs more formally and usually calls for a lawyer.
Filing fees range from under $100 in small claims to over $400 in civil court, depending on jurisdiction and amount in dispute. You’ll also pay for service of process, the formal delivery of the lawsuit papers. A private process server typically charges $20 to $100 per job; in most places, the local sheriff’s office can also serve papers, often for less.
Once the debtor is served, the court sets a hearing. In small claims, that’s often 30 to 70 days out. If the debtor doesn’t appear, you can request a default judgment. If they do, both sides present evidence, and this is where your documentation file earns its keep. Every contract, invoice, delivery receipt, and demand letter you saved strengthens the case.
Collect on the Judgment
Winning a judgment doesn’t put money in your account. It gives you legal authority to go after it, and that’s a separate process. The right tool depends on what the debtor actually has.
Wage Garnishment
If the debtor is employed, wage garnishment orders the employer to withhold part of each paycheck and send it to you. Federal law caps ordinary garnishments at the lesser of 25 percent of disposable earnings or the amount by which those earnings exceed 30 times the federal minimum wage per week.5U.S. Department of Labor. Fact Sheet 30 – Wage Garnishment Protections of the Consumer Credit Protection Act Some states are stricter. You’ll file the appropriate paperwork with the court, often called a writ of garnishment or income execution, and have it served on the employer.
Bank Account Levy
A bank levy freezes the debtor’s account and pulls available funds toward the judgment. File a writ of execution with the court clerk and arrange for a sheriff or constable to serve it on the bank. Each levy is a one-shot capture of whatever sits in the account at the moment of service; if that doesn’t cover the balance, you can file again later. You’ll need to know the debtor’s bank and branch. Without that, the writ has nothing to hit.
Property Lien
Recording your judgment with the county recorder creates a lien against any real property the debtor owns in that county. The lien doesn’t force a sale, but the debtor can’t sell or refinance without paying you first. In many jurisdictions the lien also attaches to property the debtor acquires later. It’s a slow tool. For larger debts, it’s one of the most reliable.
Post-Judgment Interest and Renewal
Most judgments accrue interest from the date of entry. In federal court, the rate is tied to the weekly average one-year Treasury yield for the week before judgment.6Office of the Law Revision Counsel. 28 USC 1961 – Interest State courts set their own rates. Judgments stay enforceable for a fixed period that varies by state, often five to twenty years, and most states let you renew before expiration. Don’t let a judgment lapse while you wait for the debtor’s finances to turn around.
Optional Follow-Ups That Recover Some Value
Reporting to the Credit Bureaus
Reporting an unpaid account can pressure the debtor to pay, since a collection entry can sit on their credit report for up to seven years. Reporting also carries obligations under the Fair Credit Reporting Act. You can’t furnish information you know or have reason to believe is inaccurate, you must investigate disputes and correct errors, and you can’t keep reporting disputed information without noting the dispute.7Office of the Law Revision Counsel. 15 USC Chapter 41, Subchapter III – Credit Reporting Agencies When you first report a delinquent account that has been placed for collection or charged off, you must notify the bureau of the original delinquency date within 90 days. That date controls when the mark eventually falls off. Not every business has a furnisher relationship with the major bureaus, but if you report, accuracy is not optional.
Writing the Loss Off on Your Taxes
When a debt genuinely can’t be collected, the tax code lets you deduct a business bad debt in the year it becomes wholly or partially worthless.8Office of the Law Revision Counsel. 26 USC 166 – Bad Debts You don’t have to exhaust every remedy to prove worthlessness, but you do need to show reasonable collection efforts and no realistic expectation of repayment.9Internal Revenue Service. Bad Debt Deduction
There’s a real limit here: you can only deduct an amount you previously included in gross income. Cash-basis businesses that never reported the revenue because the customer never paid have nothing to deduct. Accrual-basis businesses, which book revenue when earned, get the most from this deduction. Sole proprietors claim it on Schedule C; other entities report it on the applicable business return.9Internal Revenue Service. Bad Debt Deduction