The short version
- Diagnose first. A disputed invoice is a contract problem and must be answered on the facts in writing; an undisputed one is a collection problem and should be escalated on a fixed schedule.
- Every claim expires. Limitation periods for contract debts are set state by state; UCC § 2-725 gives four years for the sale of goods, and parties can shorten that to as little as one year by agreement.
- A signed acknowledgment of the balance is the cheapest thing to obtain from a stalling debtor, and in many states it restarts the limitation clock.
- The FDCPA governs consumer debts and third-party collectors. A business chasing its own commercial invoices in its own name is outside it — though state law is not.
First, work out which problem you have
The single most useful question is whether the customer has actually said the invoice is wrong. Silence is not a dispute, and people treat it as one — softening their approach, waiting for a conversation that is not coming. Equally, a genuine complaint about the work is not solved by a fifth reminder.
The fork that decides everything after it
Has the customer actually put a dispute in writing?
No — just silence or promises
A collection problem. Escalate on a fixed schedule: chase, statement of account, acknowledgment, formal demand, then a decision between agency and claim.
Yes — they say the work or the amount is wrong
A contract problem. Answer it in writing on the facts, and separate the disputed part from the undisputed part so the rest can be paid now.
Where part of an invoice is disputed and part is not, say so explicitly and ask for the undisputed portion immediately. It is a reasonable request that is hard to refuse, it reduces the exposure, and it establishes on the record that the rest was never in issue.
The ladder, in order
- 1
Check your own file before you chase
Was the invoice addressed to the correct legal entity, sent to the address or portal the contract specifies, carrying the reference number the customer requires, for an amount the purchase order authorises? A quarter of "non-paying customers" are administrative failures at the supplier's end, and fixing one now is far cheaper than discovering it at a hearing.
- 2
Chase a person, not a mailbox
Call whoever approves payment, then send a short email the same day confirming what was said. Ask a closed question — which date will it be paid — rather than an open one. A named person and a stated date turn a vague intention into something you can hold them to next week.
- 3
Send a statement of account
Every open invoice, its age, and the total. This does two useful things: it puts the whole relationship on one page for whoever has to approve it, and it routinely surfaces the invoice they will tell you was never received.
- 4
Decide about further work
Suspending performance is either a contractual right or a breach — there is no middle position. Check whether the agreement lets you stop for non-payment and on what notice. If it does not, finish the current commitment, stop taking new work from that customer, and get a suspension clause into the next contract.
- 5
Get the debt acknowledged
A short signed debt acknowledgment recording the balance as at a date, and any repayment schedule, is the most valuable thing you can extract from a customer who keeps promising. It removes the "what do we actually owe" argument entirely, and in many states it restarts the limitation period.
- 6
Send a formal demand
Facts, obligation, breach, sum, calendar deadline, consequence. This is the last cheap step and a significant proportion of debts settle here. The demand letter guide sets out the structure and the six mistakes that make one easy to ignore; the demand letter template has the wording.
- 7
Choose: agency, claim, or write-off
At this point you are making a commercial decision rather than continuing a process. Compare the recovery odds against the cost and the time, and pick one deliberately. The worst outcome is announcing a consequence in the demand letter and then doing nothing, because it teaches the customer — and anyone they talk to — exactly what your deadlines are worth.
The clock that ends all of this
Claims expire, and the deadline is unforgiving. For the sale of goods, UCC § 2-725 sets a four-year period running from when the breach occurs, regardless of whether you knew about it — and the parties can shorten that to as little as one year in their original agreement, though they cannot extend it. Check your own terms of business before assuming you have four years; a one-year limitation clause in a supplier agreement you signed is enforceable against you.
For services and general contract debts the period is state law, and the spread is wide — a few years at one end, a decade at the other, often with different periods for written and oral agreements. Take the number from your own state's statute rather than from a summary table, because the clock start date matters as much as the length of it.
The four dates on a debt, and the only one you control
The breach
The clock starts here
For goods, § 2-725 runs from the breach itself — not from the day you noticed it.
Your own terms
It may already be shorter
The original agreement can cut the period to as little as one year. It cannot lengthen it.
Acknowledgment
In many states, it restarts
Some states want a written promise to pay, not merely an admission of the balance.
Expiry
File, or write it off
A decision point you set in advance, rather than a date you find out about afterwards.
Debt acknowledgment template
Full text free to read and copy — the balance as at a date, the reason it is owed, any repayment schedule, and a signature block. The cheapest document in a collection file.
Collection agency or small claims?
| Collection agency | Small claims | |
|---|---|---|
| Cost to start | Usually nothing up front | A filing fee, plus service costs |
| What it costs you | A percentage of what is recovered, and it is not small | Your own time; some states bar lawyers at the hearing |
| Best for | Volume, older debts, customers who ignore you | A single clear debt with documents behind it |
| Relationship | Effectively ends it | Ends it too, but on your own terms |
| If they defend | The agency generally hands it back or refers it on | You get a hearing and a decision |
| What you end up with | Money, or the debt back | A judgment, which is not the same as money |
A third option sits between them: selling the debt outright, at a heavy discount, to a buyer who then owns it. That converts an uncertain recovery into a small certain one, and it hands the customer relationship over to someone with no interest in preserving it. For a genuinely bad debt that is sometimes the rational trade. A fourth is to take less and close it properly — a settlement agreement with a release, so the discount buys finality rather than a pause.
Sue the right entity, or lose on a technicality
The most common own goal in small claims is naming the wrong defendant. "Riverside Kitchens" may be a trading name for an LLC with a different registered name, or for a sole trader, or for a company that dissolved last year. A judgment against a name that is not a legal person is worth nothing.
Before filing: check the state business registry for the exact registered name and the registered agent for service. Check the invoice, the contract and the purchase order all name the same entity — if they do not, that inconsistency is the first thing a defence will use. And check whether you hold a personal guarantee from a director, because if you do, the choice of defendant is a strategic decision rather than an administrative one.
What you can and cannot do while chasing
The federal rules people worry about mostly do not apply here. The FDCPA defines "debt" as an obligation of a consumer arising out of a transaction primarily for personal, family or household purposes — which puts a business-to-business invoice outside it. It also excludes from "debt collector" an officer or employee of a creditor collecting, in the creditor's name, debts owed to that creditor. Chasing your own commercial invoices under your own name is not covered.
That is not a licence. State debt collection and unfair-practices statutes frequently reach further than the federal rule, and several apply to original creditors. The sensible line, which also happens to be the effective one:
- Keep it factual and in writing. Every threat you make should be one you will carry out, and every letter should read as though a judge will see it.
- Withhold deliverables only if the contract lets you. Where the licence to use the work is expressed to be conditional on payment, you have real leverage; where ownership passed on delivery, holding files hostage can itself be a breach. Which of those you are in was decided when the contract was signed.
- Be careful about publicity. Naming a non-paying customer publicly is how a collection matter becomes a defamation claim, and the fact that the debt is real does not make the exercise safe.
- Do not contact the debtor's customers. It rarely produces payment and frequently produces a counterclaim.
Winning is not collecting
This is the part most articles skip, and it should change your decision. A judgment is not money — it is permission to start trying to take money. Enforcement is a separate process with its own steps and its own costs: garnishing wages or a bank account, a lien against property, an examination of the debtor about their assets, each depending on what your state allows.
Some defendants cannot be enforced against at all. A dissolved company with no assets, or an individual whose income and property are exempt from execution, produces a judgment that is genuinely uncollectable. Do the assessment before you file rather than after you win: is there an asset, a bank account, a property, or a trading business to enforce against? If the honest answer is no, the claim is a way of spending money to feel better.
When to write it off
Writing off a debt deliberately is a legitimate commercial decision and often the right one. The test is not fairness — you are owed the money and that will not change — but expected value: the probability of recovery, multiplied by the amount, against the cost and the hours it will consume.
Whether the write-off is deductible depends on your accounting method and whether the amount was ever recognised as income, which is a question for your accountant rather than for a template. Ask it, keep the file, and keep it for the longer retention window that supporting a bad-debt claim usually requires.
Then close the loop at the other end. Almost every unrecoverable debt traces back to a decision made before the work started: no deposit, no credit check, no stop-work clause, terms that were never agreed in writing. The invoice and payment terms guide is where that gets fixed, and fixing it is worth more than recovering this one.
The uncomfortable conclusion
The escalation ladder works, but it works best in the first sixty days, when the customer still has a relationship to protect and the debt is still an embarrassment rather than a habit. Suppliers who recover well are not tougher than the ones who do not. They are just faster, more systematic, and entirely unembarrassed about asking on day 31 for money that was due on day 30.
Sources
General information, not legal advice. This guide explains how these documents and rules generally work. Law varies by jurisdiction and changes, and none of it is applied to your circumstances here. For anything consequential, consult a licensed attorney where you are.
Frequently asked
How long do I have to sue for an unpaid invoice?
It depends on the type of contract and the state. For the sale of goods, UCC § 2-725 provides four years from the breach, and parties can shorten that to as little as one year in the original agreement. For services and general contract debts, periods are set by state statute and vary widely, sometimes with different limits for written and oral agreements. Check your own state and your own terms.
Can I stop work because a customer has not paid?
Only if your contract gives you the right to suspend for non-payment, and then only on whatever notice it requires. Without that clause, walking off site or withholding delivery can itself be a breach, which hands the customer a counterclaim and complicates the debt. If your agreements do not have a suspension clause, that is the single most useful thing to add to the next one.
Is a collection agency better than small claims court?
They suit different debts. An agency costs nothing up front and takes a significant percentage of anything recovered, which fits older debts and customers who simply ignore you. Small claims costs a filing fee and your time, and produces a judgment you then have to enforce. If the debt is clear, documented and within your state's limit, filing yourself usually returns more.
Do debt collection rules apply to me chasing my own invoices?
The federal FDCPA largely does not. Its definition of debt covers consumer obligations for personal, family or household purposes, and it excludes employees of a creditor collecting in the creditor's own name. State debt collection and unfair-practices statutes are a different matter and often reach original creditors, so keep communications factual and avoid threats you will not carry out.
What if the customer has no money?
Then a judgment may be worth nothing, and that should shape the decision before you file rather than after. Check whether there is a trading business, a bank account or property to enforce against, and whether you hold a personal guarantee from a director. If there is genuinely nothing to enforce against, negotiating a partial payment now usually beats spending more to obtain an uncollectable judgment.