How Do I Collect Small Business Debt?

How Do I Collect Small Business Debt?

It wouldn’t be an exaggeration to say that free cash flow – the amount of cash flowing in over and above the expenses – is the lifeblood of small business creditors. A lack of consistent positive cash flow can stop your business in its tracks, preventing you from reinvesting in growth or building your team. And one of the major factors affecting cash flow is a delinquent account.


The issue is pretty complex : you need to be firm with delinquent clients but not overly so; you need to identify problems with collections before they blow out of proportion; and after you’ve given the client more than enough leeway, leverage the long arm of the law to recover what is rightfully yours. This post will help you understand how to collect small business debt the smart way and significantly lower the amount of late payments owed to you.


Let’s start by categorizing late paying clients.


Do these clients sound familiar to you?


  • Those who do their level best to dodge payments
  • Those who have missed a number of payments but keep paying you small amounts from time to time
  • Those who usually pay on time but cannot owing to financial difficulties


The second and third categories of clients may not hit cash flow in a big way, but handling willfully evasive entities can be frustrating. It helps to identify who among your clients is likely to fall into the first category, and initiate quick action against them. Avoid waiting till the end of the month to send an invoice or past-due notice; notify them immediately and ensure that you get paid in full.


First method to collect small business debt : Telephone calls


Understandably, you don’t instantly want to get into attack mode when your client has one or more payments due. Call them up to take stock of the situation.


  1. Contact the person in charge of paying invoices. You can either meet him/her in person or call him/her up. If you don’t have the individual’s contact number, call up the client’s office and request to speak to the concerned individual. Should he/she not be available, ask the person taking the message when the responsible individual can be reached.


Feel free to state your reason for calling to the person receiving your call. It will create a sense of urgency and indicate that your message is important and must get through immediately to the invoice paying professional. Politely stating your purpose for calling will also encourage the individual to call back.


  1. Maintain a calm and professional voice when reminding your client that they haven’t yet honored their payments. Being angry or rude can actually be a deterrent to small business debt collection. Communicate that you’re doing your job and asserting your right; this will have a far greater impact on the client. Guilt works better than aggression, compelling your client to consider repayment to you before other creditors/vendors.


  1. Ask your client to provide a specific date by which or on which payment will be made. Don’t accept cryptic assurances such as ‘very soon’, ‘at the earliest’ or ‘by the end of the month’. If the client says that they will mail out the payment the next day or during the week, see if you or one of your employees can visit the client and pick up the check. This way, you don’t have to wait for the mail to come through or set a reminder to check for a mail from the client.


  1. It doesn’t hurt to reiterate the client about their contractual obligations. Make it known that you are professional in all your dealings and expect the same from them. This reminder can put pressure on the client to take the matter seriously and act swiftly.


Following up with delinquent clients


Assurances made over the phone may sometimes not translate into action. If your client has gone back on their commitment to expedite payment, it’s time to turn up the heat. Here are some tips on following up with your client.


  1. Make it known that you will be forced to take punitive action against them in order to recover your money. As legal action can adversely affect the company’s reputation – which in turn can impact sales and bottom line – they may give the matter the attention it deserves.


  1. Frequent follow-ups over the phone have a nuisance value that can tire your client into paying sooner rather than later. It is no doubt unpleasant, but necessary to keep refreshing their memory; you can perhaps even explain how their delinquency is affecting your cash flow and business.


  1. Make a personal visit to the company to negotiate the matter of small business debt collection in person. A face-to-face interaction – where your emotional expressions are clearly seen – can express the gravity of the situation more effectively than a phone call or email. Schedule an appointment; if the client dilly-dallies, show up at their premises and wait until you can meet the responsible individual. If you’re asked to leave, you can safely assume that you’re up against a tough debtor. It is also best to go with evidence that justifies the invoices, as it’s quite possible that the company may raise some complaints.


Second method to collect small business debt : Collection attorney


When the first two methods outlined above don’t work, you will have to resort to legal options. If you’re owed a large sum of money – as is always the case with commercial debt – legal counsel can be invaluable.


One thing to note here is, if the client in question is genuinely unable to pay back owing to business troubles, you could consider a repayment plan where small payments are spread over a specific time period, or an immediate payment of a reduced amount and the rest in installments. However, if you feel that the company is going to great lengths to avoid paying you, summon the courage to initiate punitive action.


Are there any alternatives to hiring a collection attorney to collect small business debt? If you’re owed a small amount, you can file a claim yourself in a small claims court. Another option is to go through a debt collection agency. Agencies often work with collection attorneys on cases where debt exceeds $1,000; you might as well do away with the intermediary and directly engage a qualified attorney to recover your debt.


Individual and business debtors may be advised by their own legal counsel on how far a collection agency can go as well their own rights under the Fair Debt Collection Practices Act and stipulations governing collectors belonging to the Commercial Collection Agency Association.


The Fair Debt Collection Practices Act (FDCPA) is a federal law that applies to third-party debt collectors and not the company being owed the money. The law governs personal, household or family debt, and not debts owed by businesses or individuals who’ve taken on debt for business purposes (see our review on difference between consumer and commercial debt collection). It outlines specific guidelines that the entity trying to collect the debt must follow. Non-compliance with the guidelines can lead to the debt being declared null and void by the court of law.


There are no federal laws regulating commercial debt collection by third-party collection agencies. It doesn’t mean that commercial debt collection agencies can act as they please. The Commercial Collection Agency Association (CCAA) regulates the activities of commercial debt collectors. Firms are required to comply with the highest standards of practice and ethics to become certified members of the CCAA. Some states also enforce licensing requirements for commercial collection firms; the licenses are renewed every year or every alternate year.


Collection agency vs collection attorney


Agency Attorney
Pursue debtors over the phone or via letters. Send demand letters and file a lawsuit, intimating the debtor about the court date to settle the matter. In the event of a default judgment, the firm can take additional action such as wage garnishment, collection of profits from rental or business income, and placing a lien on non-exempt property.
Usually charge 35-50 per cent of the paid amount. Charge based on the size of the debt; the percentage rarely exceeds 50 per cent. Many work on a contingency basis, charging you only after successfully collecting the debt.
May hold debt accounts for several months or even years before recovering your money for you. Usually faster recovery than a debt collection agency.


From the table above, it can be reasonably concluded that a debt collection attorney may be the better alternative. The ‘attorney advantage’ you gain are outlined below:


  1. Faster response from debtor: Your client may not take letters from the debt collection agency you’ve engaged too seriously. In fact, the letters may just end up being unread and trashed. Letters from an attorney hold more weight, and the response therefore, is also more likely to be quick.
  2. Effective methods: Beyond continued contact to collect small business debt, a collection agency doesn’t usually employ any other method to deal with delinquent accounts. An attorney, on the other hand, has other tools in his/her arsenal to investigate the reasons for delinquency and the best strategic route for your particular situation. For instance, your attorney may serve a subpoena and undertake document searches to identify assets that debtors can use to satisfy a judgment. Bank levies and property foreclosures are other processes that your attorney will initiate and follow through on your behalf.
  3. Service tailored to your needs: In continuation from the point above, you can expect your attorney to customize his/her approach based on your case. Your attorney will perform due diligence, exploring all available legal options to collect commercial debt.


What else can a commercial debt attorney do for you?


Depending on the state where the action will be filed, the following legal procedures may be at your disposal:


  • Attachment and execution : In some states, personal property such as equipment, stocks, bonds, vehicles and boats can be sold off to satisfy debts owed by the debtor. Certain legal requirements and procedures must be followed in order to effectuate an attachment and execution.
  • Uniform Fraudulent Transfer Act : States that have adopted this Act can – under certain circumstances – allow a creditor to void the transfer of an asset made by the debtor and instead use it to satisfy the debt. Usually, such transfers are done with the intention to delay, obstruct or defraud a creditor.
  • Post-judgment examination : Some states may allow a post-judgment examination of the debtor under oath or deposition. The examination ascertains the location and assets owned by the debtor, and is performed prior to executing on property or garnishing wages. Besides the post-judgment deposition, your attorney can also have your debtor produce documents related to their assets, their financial condition, or any transfers of assets made by them. Usually, tax returns, bank records (monthly statements and canceled checks), records regarding ownership of securities or bonds, and financial records pertaining to business operations, are requested in post- judgment discovery to collect small business debt.


A debt collection attorney on our site will be able to advise you further and guide you in the right direction.


In conclusion


Debtors will do anything to avoid being sued or having to disclose their bank accounts and assets in a post-judgment procedure. They would much rather co-operate when you bring an attorney into the picture to collect small business debt owed to you. Engaging the services of a commercial debt collection attorney can expedite results on delinquent accounts and offer closure, allowing you to focus on other aspects of your business.


Collect Now connects you to local attorneys who you can peruse before bringing on board to initiate punitive action against debtors. As attorneys will be competing for your business on our site, you can expect to negotiate a competitive offer as well as manage legal expenses more easily while retaining a qualified attorney who can deliver the results you seek.




1 thought on “How Do I Collect Small Business Debt?”

  1. Owning a small business can be difficult, especially when people don’t pay for their services and a acquire a balance. I have relatives that this happens all to frequent with so I’m glad there are debt collectors that are able to help people out with this. I have heard that they only work on commission, where as attorneys don’t, so they aren’t as likely to fight for your lost money. How much does a debt collector typically cost? I’ll be sure to pass this information along to my family in the hopes it can benefit them.

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