To collect a past-due invoice, confirm your state’s statute of limitations still allows a lawsuit, pull your contract and invoices together, send a certified demand letter, and if the debtor still won’t pay, file in small claims court or hand the file to a collection agency. A court judgment is not the end of the job: you then use tools like wage garnishment, judgment liens, and bank levies to actually get paid.
Confirm the Debt Is Still Within the Statute of Limitations
Every state sets a deadline for filing a breach-of-contract lawsuit, and once it passes you lose the legal right to sue even when the debtor plainly owes the money. Written contracts carry windows that run anywhere from 3 years in some states to 15 years in others. Oral agreements have shorter deadlines, often 2 to 6 years. The clock usually starts on the date the invoice was due, not the day you noticed it was unpaid.
Partial payments and written acknowledgments can restart the clock in many states, which cuts both ways. Accepting a small payment on a very old debt can revive your right to sue in one jurisdiction and have no effect in another where an expired period cannot be revived. If the deadline is close, talk to an attorney before you do anything. Filing suit on a time-barred debt wastes your filing fee, and routing an expired debt through a collection agency can create legal liability for the agency.
Gather Your Documentation
Strong records are the foundation of every collection effort. Before you send a letter or file anything, assemble:
- The original signed contract or purchase agreement setting out the terms the debtor accepted.
- Every unpaid invoice, with line items, service dates, and specific amounts.
- Proof of delivery or performance: signed receipts, shipping records, or timestamped emails showing the debtor received the goods or services.
- A communication log listing call and email dates, the people you spoke with, and what was said about the balance.
- The debtor’s correct legal name and entity type. If you contracted with an LLC or corporation, the lawsuit has to name that entity, not an individual employee who signed the invoice.
For sales of physical goods, Article 2 of the Uniform Commercial Code governs whether the buyer properly accepted the products and whether an enforceable obligation to pay was created.1Legal Information Institute. UCC Article 2 – Sales Service debts fall under general contract law, so your written agreement and evidence of completed work establish the obligation.
Electronic records carry the same legal weight as paper in most contexts. Under the Electronic Signatures in Global and National Commerce Act, a contract or signature cannot be denied enforceability simply because it exists in electronic form.2Office of the Law Revision Counsel. 15 USC Chapter 96 – Electronic Signatures in Global and National Commerce Emailed invoices, e-signed contracts, and digital delivery confirmations qualify as evidence as long as you can accurately reproduce them. Store them in a format that stays accessible and printable for the duration of any potential dispute.
Send a Formal Demand Letter
A demand letter is not legally required in most jurisdictions, but it is almost always worth sending. Many debtors pay once they see a written demand that signals you are prepared to go to court. Even when it doesn’t produce payment, the letter helps your case by showing the judge you gave the debtor a fair chance to resolve things voluntarily.
The letter should state:
- The total amount owed, including any late fees or interest your contract authorizes.
- Each unpaid invoice number and date, so the debtor can verify against their own records.
- A payment deadline, usually 10 to 30 days from the date of the letter.
- Accepted payment methods, including a structured payment plan if you are open to one.
- A clear statement that you will pursue legal remedies, including court action and collection services, if the deadline passes without payment.
If your contract provides for interest on late payments, calculate and state the accrued amount. Where no contract rate exists, many states impose a statutory rate on past-due debts, though rates vary widely. Charge only the fees and interest your contract authorizes or state law permits. Do not inflate the balance with penalties you have no legal basis to collect.
Send the letter by certified mail with return receipt requested so you can prove delivery. Keep a copy of the letter and the receipt in your file; both become evidence if the matter goes to court.
Sue in Small Claims Court
If the demand letter doesn’t produce payment, small claims court is usually the fastest and cheapest path to a judgment. These courts are built so individuals and business owners can present their own cases without hiring an attorney.
Jurisdictional Limits and Filing Fees
Every state caps the dollar amount you can claim in small claims. Most caps fall between $2,500 and $15,000. If your invoice exceeds the limit, you can sue for the maximum and forfeit the rest, or file in a higher court with more complex procedures that usually require an attorney. Filing fees run from roughly $15 to $300 or more depending on the claim amount and jurisdiction. Win the case and you can generally ask the court to add the filing fee to your judgment.
Filing and Serving the Debtor
You start the lawsuit by filing a complaint, sometimes called a statement of claim, with the court clerk. It identifies the debtor, states the amount owed, and briefly explains why the money is due. Attach the contract, invoices, and other key documents.
After filing, you have to formally deliver the paperwork through service of process. Most jurisdictions allow service by a professional process server, a sheriff’s deputy, or certified mail with return receipt. Process server fees typically run $30 to $100. Once service is complete, file proof of service, sometimes called an affidavit of service, with the court. Without proper service, the case cannot move forward.
At the Hearing
Small claims hearings are informal. Bring organized copies of everything: contract, invoices, proof of delivery, your demand letter with the return receipt, and your communication log. Walk through the facts in order. The judge will ask questions and give the debtor a chance to respond.
If the debtor was properly served and doesn’t appear, ask for a default judgment for the full amount claimed. If the debtor disputes the debt, the judge weighs the evidence and rules. Thorough documentation at this point is what separates a full recovery from a reduced or dismissed claim.
Hire a Collection Agency or Attorney
When direct efforts fail or the balance is large enough to justify professional help, you can hand the file to a collection agency or a collections attorney. Agencies usually work on contingency at 25% to 50% of what they recover. Older debts and smaller balances carry higher fees because they are harder to collect. Some agencies charge flat upfront fees in addition to or instead of contingency, so read the fee structure carefully before signing a representation agreement.
One boundary matters here: the Fair Debt Collection Practices Act covers debts incurred for personal, family, or household purposes.3Office of the Law Revision Counsel. 15 USC 1692a – Definitions A business collecting an unpaid invoice from another business is outside the Act.4Federal Trade Commission. Fair Debt Collection Practices Act The Act also applies only to “debt collectors,” generally third-party agencies and attorneys collecting debts owed to someone else. An original creditor collecting its own invoices under its own name isn’t bound by its restrictions, though using a different name that suggests a third party is handling the file brings you back under the Act. Most states have their own unfair business practices statutes that bar harassment and deception regardless of what the federal law covers.
If the debt is consumer in nature, the agency has to send a written validation notice within five days of first contact, stating the amount, the creditor’s name, and the debtor’s right to dispute within 30 days. A written dispute inside that window freezes collection until the agency provides written verification.5Office of the Law Revision Counsel. 15 USC 1692g – Validation of Debts
Collect After You Win
A judgment proves you are legally owed the money. It does not move funds into your account. If the debtor doesn’t pay voluntarily after judgment is entered, you use post-judgment tools to find assets and compel payment.
Judgment Debtor Examination
You can ask the court to order the debtor to appear and answer questions under oath about income, bank accounts, and property. This proceeding, sometimes called a debtor’s exam or supplementary proceeding, tells you what to target. The debtor has to disclose where they work, where they bank, and what they own. Failure to appear after proper notice can result in contempt.
Wage Garnishment
Federal law caps how much of a paycheck you can garnish. For ordinary debts (not child support or taxes), the maximum is the lesser of 25% of weekly disposable earnings or the amount by which those earnings exceed 30 times the federal minimum wage.6Office of the Law Revision Counsel. 15 USC 1673 – Restriction on Garnishment At a $7.25 federal minimum wage, the floor works out to $217.50 per week. A debtor earning $300 per week in disposable income would face a maximum garnishment of $75 (25% of $300), because that is less than the $82.50 produced by the minimum-wage test ($300 minus $217.50). Some states cap garnishment more tightly.
Judgment Liens
Filing a certified copy of your judgment with the appropriate recording office creates a lien on the debtor’s real property. Under federal law, a judgment lien lasts 20 years and can be renewed for one additional 20-year period if you file a notice of renewal before the original period expires and the court approves it. The lien takes priority over later-filed encumbrances and has to be satisfied before the debtor can convey clear title.7Office of the Law Revision Counsel. 28 USC 3201 – Judgment Liens State lien durations and renewal rules vary, so check your jurisdiction’s requirements.
Bank Levies
A bank levy lets a sheriff or marshal freeze funds in the debtor’s account. File a writ of execution, pay the court fee, and give the sheriff’s office the bank’s name, address, and last four digits of the account number. Once the account is frozen, file a motion asking the court to transfer the funds. The debtor has a chance to object; if no objection comes in, the judge signs the order and the sheriff collects.
Write Off What You Can’t Collect
If collection ultimately fails and the debt is worthless, you may be able to claim a business bad debt deduction. The IRS requires that you took reasonable steps to collect and that there is no realistic expectation of payment. You do not need a court judgment; showing that any judgment would be uncollectible can be enough.8Internal Revenue Service. Bad Debt Deduction
The deduction is available only if you previously included the invoice amount in gross income. Accrual-method businesses report revenue when earned, so unpaid invoices qualify. Cash-method taxpayers, who report income only when actually received, generally cannot deduct unpaid invoices because the amount was never reported as income.8Internal Revenue Service. Bad Debt Deduction
Business bad debts go on Schedule C for sole proprietors or the applicable return for other entity types. Take the deduction in the year the debt becomes worthless, not the year you gave up trying.8Internal Revenue Service. Bad Debt Deduction One narrow boundary: if you forgive a consumer debt of $600 or more and your business qualifies as a lending entity under IRS rules, you may need to file Form 1099-C. Most businesses collecting ordinary trade invoices are not required to file it, because the obligation primarily applies to financial institutions and companies whose significant business activity is lending.9Internal Revenue Service. Instructions for Forms 1099-A and 1099-C