Options for Collecting an Unpaid Debt

There are a variety of collection tools available for a business to legally collect its debts, including informal collection procedures, collection agencies, and lawsuits.   Whichever option you choose, however, you should start by establishing a credit agreement for your customers, as well as debt collection procedures, that are to be used with regard to all debts owed to your business.   Having these policies in place can make it easier for your business to recoup the costs of unpaid debts that are owed to your business.

Informal Collection Procedures

Before you turn to a collection agency and/or legal remedies to collect a debt, you may want to attempt some informal collections of the debt.   Because you are acting as a “debt collector” in attempting to collect your debt, your actions must comply with the Fair Debt Collection Practices Act, which is a federal law that governs what steps creditors can take to collect debts owed to them.   Many times, businesses will first notify their customers in writing regarding an unpaid debt by sending them a past-due statement or similar documentation that the bill has not been paid.   You might also telephone or otherwise send a letter to customer and request payment of the debt.

Collection Agencies

If you are unsuccessful in your informal efforts to collect the debt, you may want to enlist the assistance of a collection agency.   These agencies will take all appropriate informal and formal collection actions on your behalf in order to collect the debt.   Typically, a collection agency takes collection cases on a contingency basis, which means that the collection agency receives a portion or percentage of any payments that the customer makes toward the debt.  

Lawsuits and Other Legal Remedies

In some cases, the only means to collect a debt is to turn to lawsuits and other legal remedies.   Many states operate “small claims” courts that permit you to file lawsuits to recover debts on your own.   If you have larger debt, however, or if your jurisdiction does not have a small claims court, you will need to hire a lawyer to help you file a lawsuit to collect the debt.   A court can issue an order for the debtor to pay you the debt owed, or a judgment.   However, even after a judgment is entered by the Court, you may need to take further action against the debtor in order to force the debtor to begin paying on the judgment, such as asking the Court to issue a wage garnishment against the debtor, or to gain information about the debtor’s proposed payment plan.  

If your business involves construction or other types of home improvement, you may be eligible under your state’s laws to file a mechanic’s lien in the amount of your unpaid bill against the debtor’s real estate.   If the bill remains unpaid, then the lien can be enforced, resulting in a foreclosure sale of the real estate.

Seek Advice from an Attorney Before Taking Action

If you need to pursue an unpaid debt for your business, consider talking to an attorney before you take any actions toward collecting the debt.   An attorney can help you explore all of your available options and decide which option is best for your business.

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