To collect an unpaid invoice, you build a paper trail, send a formal written demand, and, if the debtor still refuses to pay, sue for a judgment and use enforcement tools like wage garnishment, bank levies, and property liens to actually get the money. Move promptly: the statute of limitations for most unpaid invoices runs between three and six years, and for contracts involving the sale of goods the Uniform Commercial Code generally sets a four-year deadline.1Consumer Financial Protection Bureau. Can Debt Collectors Collect a Debt Thats Several Years Old
Pull Your Documentation Together First
Every step that follows depends on records. Start with the signed contract, purchase order, or written agreement showing the price, payment terms, and delivery timeline. Add every unpaid invoice, signed delivery receipt, bill of lading, or service completion certificate proving you delivered what was promised. For sales of physical goods, UCC Article 2 treats a buyer as having accepted the goods when they inspected and kept them, or simply failed to reject them within a reasonable time.2Cornell Law School. UCC 2-606 What Constitutes Acceptance of Goods
Then build a communication log: dates, contact names, and short summaries of every call, email, and letter about the overdue balance. Finish with a chronological account summary listing all charges, any credits or partial payments, and the current balance. Clean records are what separate a winning case from a losing one if the dispute reaches a courtroom.
Find Out Whether the Debtor Is Worth Suing
A lawsuit costs money, so learn what the debtor actually has before you file. County property records, court filings, and business registrations are freely searchable in most jurisdictions and will show you whether the debtor owns real estate, vehicles, or business equipment, and whether those assets already carry other liens.
If the debtor has moved or gone quiet, a skip-tracing service can locate them through public databases, utility records, vehicle registrations, and credit bureau data. A current address matters both for serving papers and for choosing the right court. Spending a little on investigation up front is far cheaper than filing suit against someone who turns out to be unreachable or has nothing to take.
Send a Formal Demand Letter
The demand letter is your final written notice before legal action. State the total amount owed, identify the invoice or contract it relates to, and set a firm deadline for payment, typically 10 to 30 days. Close with an explicit statement that you will file suit if the balance is not paid by that date. Send it certified mail with return receipt so you have proof of delivery.
If you are chasing your own business-to-business invoices, the federal Fair Debt Collection Practices Act generally does not apply, because the FDCPA covers only debts arising from personal, family, or household transactions.3Office of the Law Revision Counsel. 15 USC 1692a – Definitions The FTC Act’s prohibition on unfair or deceptive practices still applies, though, so don’t make threats you won’t follow through on and don’t misstate the amount owed.4Federal Trade Commission. Think Your Companys Not Covered by the FDCPA You May Want to Think Again If you sell to individual consumers and hire a third-party collector, the FDCPA does apply to that collector.5Consumer Financial Protection Bureau. What Laws Limit What Debt Collectors Can Say or Do
Try to Resolve It Without Court
A demand letter often opens the door to settlement. The debtor may offer a reduced lump sum, or you can agree on a structured payment plan. Put any settlement in writing and have both parties sign so it’s enforceable if the debtor defaults again.
Mediation
Mediation brings in a neutral third party to help you and the debtor reach an agreement. The mediator doesn’t decide anything; they guide the conversation toward a resolution both sides can accept. It’s faster and cheaper than litigation, and any agreement can be written up as a binding contract.
Collection Agencies
A third-party collection agency takes the administrative burden off you. Most work on contingency, keeping 25% to 50% of what they recover, with higher rates for older or harder-to-collect debts. You recover less per dollar owed, but you spend no additional time or legal fees.
Reporting to Credit Bureaus
If the debtor is an individual rather than a business entity, reporting the delinquent account to a consumer credit bureau can create real pressure to pay. You have to be sure the information is accurate, and you must report the date the delinquency began within 90 days of furnishing the account data. If the debtor disputes the report and turns out to be right, you must promptly notify the bureau and correct it. Inaccurate reporting exposes you to liability, so only report debts you can fully document.
Filing Suit in Small Claims Court
When pre-suit efforts fail, small claims court offers a relatively quick and inexpensive route to a judgment. Each state sets its own dollar ceiling, running from around $2,500 to $25,000. Above that ceiling you’ll file in a general civil or district court, which involves more formal procedure and higher costs.
File your complaint or statement of claim in the county where the debtor lives or where the contract was performed. Filing fees generally run $30 to $200. The court then issues a summons that must be delivered through formal service of process, usually by a sheriff’s office or private process server, commonly costing $40 to $100.
Once served, the debtor typically has 20 to 30 days to file a written response. If they fail to respond or don’t show up at the hearing, you can request a default judgment. Hearings are usually scheduled within 30 to 90 days of filing. Attorneys aren’t required in small claims court, and in some states they aren’t even permitted, so you present your own evidence to the judge.
Who Pays Attorney Fees
Under the American Rule, each side pays its own attorney fees regardless of who wins. The main exception is a fee-shifting clause in your contract stating that the losing party pays the winner’s legal costs. Check your invoice or contract language before filing. Court costs like filing fees and service of process are typically recoverable by the winning party even without a fee-shifting clause.
Enforcing the Judgment
Winning a judgment doesn’t put money in your hand. It gives you legal authority to reach the debtor’s income and assets. If the debtor doesn’t pay voluntarily, you have to take further enforcement steps. Federal Rule of Civil Procedure 69 provides that a money judgment is enforced through a writ of execution, using the procedures of the state where the court sits.6Legal Information Institute. Federal Rules of Civil Procedure Rule 69 Execution
Wage Garnishment
A wage garnishment order tells the debtor’s employer to withhold part of each paycheck and send it to you. Federal law caps the garnishable amount at the lesser of 25% of the debtor’s disposable earnings for that week, or the amount by which those earnings exceed 30 times the federal minimum wage ($7.25 per hour as of 2026, making the protected floor $217.50 per week).7Office of the Law Revision Counsel. 15 USC 1673 Restriction on Garnishment “Disposable earnings” is what remains after legally required deductions like taxes, Social Security, and Medicare, but before voluntary deductions like retirement contributions or health insurance.8Office of the Law Revision Counsel. 15 USC 1672 – Definitions If the debtor earns $217.50 or less per week after required deductions, their wages can’t be garnished at all. Some states set lower limits, further reducing what you can collect.
Bank Account Levy
A bank levy freezes and seizes funds in the debtor’s checking or savings account. You obtain a writ of execution and have it served on the debtor’s bank, which then freezes non-exempt funds and, after any state-required waiting period, turns them over.
Not all of the money in the account is available. Federal regulations require banks to apply a two-month lookback when the account receives direct deposits of Social Security, veterans’ benefits, or other federal benefit payments. The bank calculates the total federal benefits deposited during that window and protects that amount automatically, without the account holder needing to file an exemption claim.9Bureau of the Fiscal Service. Guidelines for Garnishment of Accounts Containing Federal Benefit Payments
Judgment Liens on Real Property
If the debtor owns real estate, you can record a judgment lien against the property in the county land records. The lien prevents the debtor from selling or refinancing without first paying the judgment. Recording fees are modest, typically $25 to $95. Judgment liens generally last 5 to 20 years depending on state law, and most states allow renewal before expiration. Even if the debtor holds the property for years, the lien secures your eventual payment.
Seizing Personal Property
A writ of execution can also authorize the local sheriff or marshal to seize non-exempt personal property, such as vehicles, business equipment, or inventory, and sell it at public auction. Proceeds go toward the judgment. In practice this is used less often than garnishments or bank levies, because auctions are slow and often bring less than the property’s real value.
Post-Judgment Interest
Your judgment accrues interest from the date it’s entered until paid in full. For federal court judgments, the rate is tied to the weekly average yield on one-year Treasury securities, which stood at approximately 3.47% in early 2026.10U.S. District Court for the District of New Mexico. 2026 Post Judgment Interest Rates State court post-judgment interest rates are set by state law and vary significantly, with recent rates ranging from about 4% to over 10%.
If the Debtor Files Bankruptcy
A bankruptcy filing triggers an automatic stay that immediately halts virtually all collection activity. The moment a Chapter 7 or Chapter 13 petition is filed, you must stop any lawsuit, garnishment, bank levy, or other collection attempt. Continuing to pursue collection is a willful violation that can produce awards of actual damages, attorney fees, and potentially punitive damages against you.11Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay
To share in any distribution from the bankruptcy estate, file a proof of claim. In a voluntary Chapter 7 case, the deadline is 70 days after the order for relief. The same 70-day deadline applies in Chapter 12 and Chapter 13 cases. Miss the deadline and you may receive nothing, even if the estate has funds to pay creditors.12Legal Information Institute. Federal Rules of Bankruptcy Procedure Rule 3002 Filing Proof of Claim or Interest Many Chapter 7 cases involving unsecured commercial debt don’t have enough assets to fully pay creditors, and your claim may be partially or entirely discharged.
Enforcing a Judgment in Another State
If the debtor moves or holds assets in another state, you can domesticate your judgment there. The Uniform Enforcement of Foreign Judgments Act, adopted by 48 states, provides a streamlined process grounded in the U.S. Constitution’s Full Faith and Credit Clause. You file a certified copy of your judgment with a court in the state where the assets are, along with an affidavit and a small filing fee. Once registered, the judgment gives you access to the same enforcement tools, including garnishment, bank levies, and liens, that local creditors have.
Domestication costs time and money, so it’s worth pursuing only when you know the debtor has assets in that state. Public records searches, property filings, and vehicle registrations will tell you whether out-of-state enforcement makes sense.
When the Debtor Has Nothing to Collect
Sometimes you win the judgment but the debtor has no garnishable wages, no non-exempt bank funds, and no property worth seizing. People call this “judgment-proof,” but the label is misleading: the judgment doesn’t disappear. It stays valid and keeps accruing interest. If the debtor’s finances improve later, you can enforce then.
Judgments have expiration dates set by state law, typically 5 to 20 years, and most states allow renewal before expiration. The working strategy is to record a lien against any real property the debtor owns, renew the judgment as needed, and periodically check whether their circumstances have changed. A court can also order the debtor to appear for a post-judgment examination, where they must disclose their income, assets, and financial accounts under oath.
Writing Off an Invoice You Can’t Collect
If you’ve exhausted collection options and the debt is genuinely uncollectible, you can deduct it as a bad debt on your business tax return. The IRS requires that the amount was previously included in your gross income (automatic for businesses using accrual accounting) and that you took reasonable steps to collect. You don’t have to sue if you can show a judgment would be uncollectible, but you do need to establish that the debt became worthless in the year you claim the deduction.13Internal Revenue Service. Topic No 453 Bad Debt Deduction
Sole proprietors report business bad debts as an expense on Schedule C.14Internal Revenue Service. Instructions for Schedule C Form 1040 Corporations and partnerships follow their entity-specific return instructions. If you use cash-basis accounting and never reported the invoice as income, you generally can’t take the deduction, because there’s no income to offset.
If you decide to formally forgive a debt of $600 or more, you may need to file Form 1099-C (Cancellation of Debt) with the IRS, which reports the canceled amount as potential income to the debtor.15Internal Revenue Service. Instructions for Forms 1099-A and 1099-C Talk to your accountant before writing off a large receivable so the timing and documentation meet IRS requirements.