How to collect unpaid invoices from a business

Almost every business that invoices customers eventually faces an invoice that doesn’t get paid. Most late payments turn out to be paperwork problems, cash-flow hiccups or simple forgetfulness, and they resolve with a reminder. A smaller number are customers who can’t pay, won’t pay, or are hoping you’ll give up. The trick is to treat every overdue invoice with the same calm, documented process so that the easy ones get paid quickly and the hard ones arrive at the right professional with everything they need.

This guide lays out that process as a timeline. The day counts are guide rails, not rules: your contract, the size of the balance, your relationship with the customer and the customer’s behavior should all shape how fast you move. Where we cite a number, we link to where it came from.

How to collect unpaid invoices: the timeline at a glance

Timing for stages 1–3 reflects common practice and your own judgment rather than a rule; Business News Daily notes some businesses send letters at 30 days past due and others wait 45 or 60^[source].

Want it all in one place? Our free collection toolkit has past due invoice email templates for each stage, a day-by-day timeline and a printable document checklist.

Stage 0: Set yourself up before an invoice is late

The best collection work happens before anything is overdue. Three habits make every later stage easier.

Put payment terms in writing

Your proposal, contract or purchase order should state the price, when payment is due, accepted payment methods, and what happens if payment is late. If you intend to charge late fees or interest, the time to say so is now, in terms the customer agrees to. Terms added after the fact are much harder to enforce. If you extend credit to newer or smaller customers, consider a credit application and, for larger balances, a personal guarantee from an owner; both become valuable if you ever need to escalate.

Invoice promptly and accurately

Send the invoice as soon as goods are delivered or work is completed, to the person who actually approves payment, with any purchase order number the customer requires. A surprising share of “late” invoices are stuck because the PO number is missing or the invoice went to a project manager instead of accounts payable. The U.S. Chamber of Commerce recommends invoicing as soon as products or services are delivered and offering convenient options such as ACH, cards or an online portal^[source].

Keep a paper trail

Save the signed agreement, change orders, delivery confirmations, timesheets, photos of completed work and every email about the job. If the account ends up with an agency or attorney, this file is what they’ll ask for first. It also protects you if the customer later invents a dispute.

Stage 1: The friendly reminder

Start the day after the due date. Business News Daily reports that intervening five to seven days after a bill is past due gives you a better chance of getting paid than waiting 30 or 45 days^[source]. Keep the tone neutral and helpful; assume an oversight.

Follow the email with a short phone call to accounts payable a few days later. Ask a simple question: “Is there anything holding this invoice up?” Often you’ll learn about a missing PO, a wrong address or an approval sitting on someone’s desk, and you can fix it on the spot.

Stage 2: The firm follow-up

If a couple of weeks pass with no payment, shift from reminding to securing a commitment. Call the person with authority to pay, not just the inbox. Be specific and polite: confirm the amount, ask when it will be paid, and repeat the date back. Then confirm by email the same day: “Thanks for speaking with me today. As discussed, you’ll pay invoice #[number] for $[amount] by [payment date].” A written confirmation turns a vague promise into a documented commitment.

Offering a payment plan

If the customer is honest about a cash-flow problem, a short written payment plan can be better than a fight. Put the schedule, amounts and due dates in writing, state that the full balance becomes due if a payment is missed, and have the customer sign or reply to confirm. A broken payment plan is also a strong signal to escalate.

Pausing work or credit

If your contract allows it, you can pause further deliveries or work until the account is current. Do this carefully: check your contract first, because stopping work without the right to do so can create a breach claim against you. On construction projects, special rules may apply, so read the section on liens below.

What not to do

Stay professional even when the customer isn’t. Don’t threaten actions you don’t intend to take or can’t lawfully take, don’t make public accusations online, and don’t contact the customer’s clients or employees about the debt. The federal consumer collection law generally doesn’t apply to business debts^[source], but defamation, harassment and state collection laws can, and a heated message can become evidence later.

Stage 3: The demand letter

When reminders and calls haven’t worked, send a formal demand letter. It is a clear, written statement of what is owed, why, by when it must be paid, and what you’ll do if it isn’t. Many disputes end here because the letter shows you are organized and prepared to escalate. Send it in a way you can prove, such as email with the PDF attached plus certified mail, to the company’s billing address and the owner or officer you dealt with.

An effective demand letter for an unpaid invoice includes:

• The invoice number(s), dates, amount due and what it was for
• A reference to the agreement or purchase order
• Any late fees or interest your contract allows, stated separately
• A specific deadline (for example, a set number of days from the letter’s date)
• How to pay
• The next step if payment isn’t received, such as referral to a collection agency or attorney, stated factually

Only state consequences you genuinely intend to follow through on. Get our free, editable past-due invoice demand letter template.

Stage 4: Hand it to a collection agency

If the deadline in your demand letter passes, the customer goes silent, or the debt keeps aging, it’s time for a professional. Business News Daily reports that most companies send past-due accounts to a collection agency at 90 to 120 days past due, and that waiting beyond 120 days makes recovery far less likely^[source]. The U.S. Chamber of Commerce similarly describes agencies as typically stepping in after an invoice is 90 days past due^[source].

What an agency does

An agency that handles business accounts will review your documents, verify the debtor’s status, and begin a sequence of written notices and calls to the people who can authorize payment. It can use skip tracing and business credit research to find debtors who have moved or changed names. It negotiates lump-sum payments or structured plans, and if those efforts fail, it can recommend forwarding the account to a collection attorney in the debtor’s state^[source].

What it costs

Most agencies work on contingency, keeping a percentage of what they recover. Business News Daily cites a typical range of 20% to 50%^[source]; the U.S. Chamber of Commerce cites 25% to 50%^[source]. Rates usually depend on the age, size and difficulty of the account. Read more on collection agency fees for small business or estimate your net with the after-fee calculator.

How to choose

Look for an agency that collects business debts as its core work, is licensed and bonded where required, explains its process for contacting your customer, reports clearly, and puts every fee in writing. Our guide to hiring a collection agency has a checklist, or you can get matched with an experienced collection partner for free.

What to hand over

Give the agency everything at once: the contract or PO, invoices, delivery or completion proof, your reminder emails and call notes, the demand letter, any payment plan, and contact details for every person you dealt with. The more complete the file, the faster the agency can act.

Stage 5: Attorney, small claims or lawsuit

A legal route makes sense when the customer flatly refuses to pay, the balance is large enough to justify legal costs, there’s a personal guarantee to enforce, or the customer has assets and is simply choosing not to pay. There are three common paths.

Small claims court

For smaller balances, small claims court can be affordable and relatively quick, and many courts let business owners appear without a lawyer. Dollar limits, filing fees and whether a business can be represented by a non-lawyer all vary by state, so check your state court’s self-help pages before you file. See small claims vs. collection agency for a side-by-side comparison.

A creditor-rights attorney

For larger or contested claims, a collection attorney can send a demand on firm letterhead, file suit, and pursue a judgment. Many agencies maintain networks of attorneys and will forward the account for you. Ask about contingency versus hourly billing, court costs and who advances them before you authorize suit.

Collecting after a judgment

A judgment is a court’s confirmation that the money is owed; it isn’t a check. Enforcement tools such as bank levies, liens on property and debtor examinations vary by state and usually require additional filings. Before suing, consider whether the debtor has revenue or assets worth pursuing.

Mind the deadline

Every state sets a statute of limitations for suing on a contract or open account, and the period varies by state and by type of agreement. Don’t let a claim sit for years: confirm the deadline that applies with an attorney in the relevant state.

Special cases

Contractors and subcontractors

If you supplied labor or materials to a construction project, you may have lien rights against the property, which can be stronger leverage than a collection call. Lien rights depend on strict notice and filing deadlines set by state law. Read mechanics lien vs. collection agency and speak with a construction attorney quickly.

Customers who are going out of business

If a customer is winding down or files for bankruptcy, act fast and get legal advice. Bankruptcy generally pauses collection activity, and creditors usually need to file claims in the case. Don’t keep calling a debtor who has filed.

Disputed invoices

If the customer raises a specific complaint about the work, address it in writing promptly. Either fix the problem, explain why the work met the agreement, or offer a documented compromise on the disputed portion while insisting on payment of the undisputed amount.

When the money truly can’t be recovered

Sometimes the customer is gone or insolvent. In that case, talk to your tax professional about whether the amount qualifies as a business bad debt. The IRS explains that business bad debts can be deductible in certain situations, generally where the amount was previously included in income^[source]. Then tighten your credit terms for the future: deposits, progress billing, credit checks and personal guarantees all reduce the odds of a repeat.

A simple checklist

1. Terms, contacts and PO details confirmed at invoicing
2. Friendly reminder the day after the due date
3. Phone call to accounts payable
4. Firm follow-up and written payment commitment
5. Formal demand letter with a deadline
6. Placement with an experienced collection agency
7. Attorney, small claims, or lawsuit if warranted
8. Judgment enforcement, or a bad debt review with your tax professional

How many days past due before an invoice goes to collections?

There is no legal minimum for business invoices. Industry guidance puts the usual referral point at 60 or 90 days past due^[source], and many companies place accounts at 90 to 120 days^[source]. Refer sooner if the customer stops responding or breaks a promise.

What does a collection agency do for a business?

It takes over contact with your customer in its own name, locates debtors who have gone quiet, negotiates payment or a payment plan, reports to you and, with your approval, refers the account to an attorney. See what a collection agency does.

How do I write a past-due invoice email or final reminder?

State the invoice number, amount, due date and how to pay, and ask for a specific date. Make each message firmer, ending with a final notice that names a deadline and the next step. Copy ready-made emails from our collection toolkit.

Should I stop work or pause service for a customer who hasn’t paid?

Often, if your contract allows it. Check the agreement first: stopping work you are obligated to perform can create your own breach. If the contract lets you suspend for nonpayment, give written notice with the amount and the date work will stop.

What do I do if the customer disputes the invoice?

Ask for the dispute in writing, separate the disputed amount from any undisputed part, and request payment of the undisputed part now. Gather your contract, delivery proof and messages. See placing a disputed invoice.

What should I do if a customer is going out of business and owes me money?

Act quickly: send a written demand, document everything and consider placing the account with an agency or attorney right away, because assets can disappear. If the customer files bankruptcy, collection must stop^[source]; see customer bankruptcy.

How do I prevent unpaid invoices in the future?

Use written contracts with clear payment terms, check credit before extending terms, take deposits on large jobs, invoice promptly and follow up from day one. Consider a personal guarantee for new business customers and a clause covering collection costs where the law allows.

How does the collection process work after I hand off an invoice?

You place the account, the firm verifies the debt and researches the debtor, contacts them, negotiates, remits what it collects minus its fee and, if needed, recommends an attorney. Read how a collection agency works.

What happens if the debtor business closes or dissolves?

A closed business can still owe the debt, but collecting depends on remaining assets, any personal guarantee and whether a bankruptcy or formal wind-down is filed. Ask a collector or attorney to check quickly; your claim may need to be filed in a proceeding.

When should I give up on collecting an unpaid invoice?

When the cost of further effort exceeds the likely recovery: the debtor has no assets, has been through bankruptcy, or the claim is past the limitation period. The IRS allows a bad debt deduction when reasonable collection steps show there is no reasonable expectation of payment^[source].

What is the statute of limitations on an unpaid invoice?

It is set by state law and depends on the claim type. For sales of goods, the Uniform Commercial Code model text sets four years from when the claim accrues^[source], but states adopt their own versions. See statute of limitations on business debt.

What does a collection agency do in the first 30 days?

Typically it reviews your documents, verifies the debtor’s details, sends a first demand and starts calling, and researches assets or new addresses if needed. Ask your agency what its first-month process and first report look like before you place.

What happens after I get a judgment against a business?

A judgment doesn’t pay itself. You may need to enforce it through court tools such as liens, bank levies or garnishment under your state’s rules. See how to collect a judgment against a business.

Frequently asked questions

Sources: Business News Daily, “The Best Collection Agency Services” (page last updated Oct 17, 2024); U.S. Chamber of Commerce CO—, “What Is a Debt Collection Agency, and When Do You Need One?”; 15 U.S.C. § 1692a (FDCPA definitions), via Cornell LII; IRS Topic No. 453, Bad Debt Deduction (accessed Oct 18, 2026).