BBB Tip: A small business owner’s guide to collecting unpaid debts

Milwaukee, Wis. – When you run a small business or work as a freelancer, you depend on your clients for income. So what happens when a client doesn’t respond to payment reminders, or simply refuses to pay? Small business owners have several options at their disposal to collect unpaid funds.

Initial Steps to Collect on Unpaid Invoices and Other Debts

Every situation is unique, and what works in one circumstance may not be effective in another. As you consider your options, keep in mind what you know about your client and use your judgment to decide how to proceed.

Resend your invoices with a polite follow-up message. As soon as a payment becomes overdue, send your client a follow-up email reminder. Be professional and polite as you let them know their invoice is now past due. Be sure to include the payment due date, remind them of payment methods you accept, and clearly outline the late fees included in your payment terms. Automated reminders are a good way to get in touch with a client without making them feel like you’re personally trying to browbeat them into paying. Always include the original invoice in your email for the client to reference.

Reach out by phone or in person. If your emails seem to be getting ignored, give your client a call personally. Be friendly and polite as you find out what the situation is and see if you can work out an agreement. If possible, try to arrange payment by getting the client’s credit card number on the spot. If your initial contact can’t answer your questions, you can give the client’s billing department a call. They have access to all the relevant information and can let you know whether your reminders were received, if a payment has already been sent, and when you can expect to receive it. If this step still doesn’t yield results and the client is locally based, try meeting them in person to discuss the matter.

Stop work. If you still don’t receive payment from your client, stop working on any pending projects, and let the client know you won’t restart work on their project until you receive a payment. This may be enough incentive for them to settle their account, but if not, at least you won’t lose any more time on an unpaid project.

Getting Outside Help Collecting Debts 

If polite calls and reminders don’t work, it’s time to take more serious action.  

Consider hiring a collection agency. Depending on how much you are owed and whether or not you are willing to take legal action, hiring a collection agency may be a good option. Collection agencies usually retain a hefty amount of what’s owed you (sometimes 50 percent or more), but they are quite effective at getting the funds, and you will no longer need to be involved in the debt collection process– meaning you can focus your time and energy on clients that do pay their bills on time. However, if you don’t want to give up such a large portion of your hard-earned money, then it’s time to consider taking legal action.

Send an attorney’s letter. At this point, if your client still hasn’t paid their bill or you haven’t been able to get a response from them, have an attorney draft a letter. You will have to pay for this, but the cost is usually reasonable. Plus, for some clients, just the thought of you taking legal measures can spur them to action and make them get in touch to work out a payment plan.

Take the client to small claims court. If the amount of money owed is relatively small, you can take your client to small claims court for a quick and cost-effective judgment. Each state has specific requirements on how much a client can owe to be eligible for small claims court. In Wisconsin, the limit is $10,000 with no limit for eviction suits. Find limits for other states hereIn Canada, it’s $35,000. You don’t need a lawyer to represent you in small claims court, and, if the client doesn’t show up, you’ll win by default.

Seek legal action in a superior court. If the amount you are owed is over the small claims court limit, you can choose to take the client to superior court. This option requires more time and is more expensive. You’ll also need a lawyer to represent you in court. Because of these factors, it’s important to do the math ahead of time and make sure you can afford to go to superior court to collect your payment.

Take the client to arbitration. Another option, if the client owes you more than the legal limit for small claims court, is to take the client to arbitration. Arbitration is faster and cheaper than going to superior court, but instead of a judge hearing your case, an arbitrator will make the final judgment. The arbitrator’s decision can be enforced in the same way a judge’s ruling can.

Decide whether to continue a working relationship. Even if you’re able to successfully collect your client’s overdue payment, take your time when deciding whether or not to continue a working relationship with them. If you do decide to keep working for your client, you should be ready to put new rules into place, such as required prepayment or more frequent payment milestones. Have a legal plan in place ahead of time as well, and make sure your client knows what action you are prepared to take. Taking these measures will protect your business and make it more likely for you to get paid on time, every time.

Tips for Before You Take on a New Client or Contract 

Research the client before you accept a job. Making sure you get paid starts long before you begin work on a project. Before agreeing to do business with anyone, research the person to find out if they have a reputation for paying on time. If other businesses refuse to work for them, or if freelancers complain they haven’t been paid, it’s best to avoid doing business with the individual in question. You can check out businesses on

Make a solid contract. Before you begin working, create a detailed contract that outlines when work is to be completed and when payments are due. If you are collecting a retainer, the contract should state how much it is and when it’s due. You should also include specific details about how and when late fees will be applied to the client’s account and legal fee clauses. Even after the contract is signed, be sure to document your work in detail, in case you need to take legal action later on.

Get paid a substantial deposit upfront. Another way to prevent unpaid debt before it happens is to require payment upfront for a job. At the very least, consider asking for a sizeable deposit on the total value of the contract – especially if you are working with a new client.

For more information for small business owners, see

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