What to Do When a Business Will Not Pay Its Invoice
Your options in order: find out why the customer is not paying, work the account in house with dates attached, put the customer on credit hold, send one final demand that means it, place the account at 90 to 120 days, and treat legal action as the last tool, not the first.
Most of the calls that reach my desk start the same way. A controller or an owner has an invoice that is 60, 90, sometimes 200 days old, the customer has stopped answering, and the question is some version of what do I do now. By the time they call us they have usually done half the right things in the wrong order, or the right things without a date attached to any of them. The order matters more than people think, because each step only works if the one before it made the next one credible.
This is the sequence I walk a prospect through on that first call, whether or not the account ends up with us. Find out why they are not paying, because the reason decides the route. Work the account in house with real deadlines. Stop the exposure growing with a credit hold. Send one final demand that means what it says. Place it with a commercial agency while it is still young enough to collect. And treat legal action as the last tool, used only when the file and the debtor justify it. Here is each step, what it should accomplish, and the mistake I see most often at each one.
Key takeaways
- Find out why the business is not paying before you do anything else. A cash shortage, a dispute, a lost invoice and a customer who has simply decided not to pay are four different problems, and the step that fixes one makes another worse.
- Work the account in house with dated steps: confirm the invoice reached the right person, call the person who approves payment, put every promise in writing, and put the customer on credit hold once a promise is broken. Each step gets a date and a consequence.
- Send one final demand letter with a placement date in it, then keep the date. A second final demand teaches the customer that your deadlines are suggestions.
- Place the account with a commercial collection agency at 90 to 120 days past due, not at 180. Most of the accounts we receive arrive near six months old, and the two months between those numbers are where the recovery goes.
- Legal action is a decision for a small share of accounts: a documented balance owed by a business that is still trading and able to pay a judgment. An account should have 120 to 180 days of collection effort behind it before anyone recommends suit.
What's inside
Why is the business not paying, and why does the reason decide everything?
Because the four common reasons need four different responses. A customer short of cash needs a payment plan with dates. A disputed invoice needs the dispute answered in writing before anyone chases it. A lost invoice needs a resend to the right person. A customer who has decided not to pay needs pressure, early, from outside your company.
On a first call I ask one question before anything about balances or dates: what does the customer say when you reach them? The answer sorts the account into one of four buckets. They say money is tight and they will pay next month. They say the goods were short, the job was not finished or the price was wrong. They say they never got the invoice, or it went to someone who has since left. Or they do not say anything at all, which after two or three attempts is its own answer.
Each bucket wants a different next move, and the most common mistake I see is treating them all the same. A customer with a genuine cash problem who gets a hard demand letter at day 35 may pay the suppliers who were kinder and leave you for last. A customer with a legitimate dispute who gets sent to collections at day 45 now has a reason to dig in, and the collector's first job becomes clearing up something your own people could have settled with one email and a delivery receipt. A customer who has decided not to pay, on the other hand, is counting on you to keep sending polite reminders for six months.
There is a fifth category that shows itself over the weeks: the business that is in trouble. Phones that stop being answered, a bookkeeper who no longer works there, a new company name on the door. When you see those signs, every step below moves faster, because a failing business pays whoever presses first.
What should you do in house before anyone outside gets involved?
Confirm the invoice reached the right person, then call the one who approves payment and ask for a date. Put every promise in writing the same day. Keep the file: signed terms, purchase order, delivery proof, the invoice and notes from each contact. Three serious contacts across about 30 days is enough to know whether the customer intends to pay.
The first in-house step is almost embarrassingly simple: find out whether the invoice is sitting in the right inbox. Accounts payable staff turn over, portals reject attachments, and the buyer who approved the order is not always the person who pays for it. One call to the customer's payables department to confirm they have the invoice, the amount and the due date often ends the problem, or at least gets you the name of the person who can.
If it is in the right hands and still unpaid, the next contact is a call, not another email, to the person who can release payment. Ask for a date, not a status. Our guide to accounts receivable collection calls covers the script; the part I would underline is that every call ends with a commitment, and the commitment goes into an email the same afternoon so there is a record of it. The collection email templates we publish are built around that 15, 30, 60 and 90 day sequence.
While you do this, build the file. The signed credit application or contract, the purchase order, proof of delivery or acceptance, the invoice and a dated log of every contact. I ask for this file on every placement call, and the accounts that collect fastest are the ones where it already exists. If there is no signed contract, do not assume the account is lost: a past due invoice without a signed contract can still be collected on the paper trail of orders, deliveries and prior payments, but you need that trail organized now, not in month six.
When should you put the customer on credit hold?
The first time a dated promise is broken, or at the point your written terms say so, whichever comes first. A credit hold stops new orders from adding to the balance and is the clearest signal a customer gets short of a collection agency. Apply it consistently, say so in writing, and tell the customer exactly what lifts it.
Prospects tell me they do not want to put a good customer on hold because they are afraid of the reaction. I understand it, and I think it gets the risk backwards. A customer who keeps ordering while an old balance sits unpaid is not a good customer; they are a growing exposure, and every new shipment is money you have decided to lend to a business that has already shown it does not pay on time. The hold is how you stop lending.
The hold works best when it is boring: a policy that triggers on a condition, written into your terms, applied to everyone. Our piece on when to put a customer on credit hold and how to lift it goes through the mechanics. The short version is that the hold notice goes to the person who places orders as well as the person who pays, because the buyer is the one who will walk down the hall and get the check released, and the notice says exactly what reopens the account: the past due balance paid, or a payment plan signed and the first installment received.
What should a final demand letter say, and when should it go?
It names the balance, the invoice numbers and the terms, states a date after which the account goes to a third-party collection agency, and gives one way to avoid that. It goes once, around 60 to 90 days past due, after the hold and after the calls. Then the date is kept. A second final demand undoes the first.
The final demand is the hinge of the whole sequence, and most companies swing it wrong in one of two ways. Either it goes out too early, before anyone has picked up the phone, so it reads as a form letter and gets treated as one. Or it goes out three times, each with a new deadline, until the customer has learned that your deadlines move. The letter only has power if the step after it is real and arrives on the day you said it would.
What belongs in it is covered in detail in what a final demand letter should say before you place the account. The essentials: the exact balance and invoices, a reference to the terms the customer agreed to, a specific date, usually ten business days out, and a plain statement that on that date the account will be placed with a commercial collection agency. If you have a signed agreement that allows for collection costs or collection agency fees, those charges may be included in the amount sought during collection; say so in the letter, in the same plain language. Do not threaten anything you have not decided to do, and do not bluff about legal action you have no intention of taking. The rules on what a demand may say vary by state, so keep it factual and keep a copy.
When is it time to place the account with a commercial collection agency?
At 90 to 120 days past due, on the date your final demand named, once the customer has broken a dated promise and ignored a hold. Place the account with the file complete: signed terms, purchase order, delivery proof, invoice and your contact log. Earlier placement recovers more, and a licensed third party changes the customer's priorities within days.
This is where the arithmetic I see every week should change your calendar. Our ideal placement is under 120 days past due. The typical account that reaches us is closer to 180. Nothing bad happens at the agency in those two months; what happens is at the debtor. They pay the suppliers who put them on hold and pressed, the person who approved your order moves on, and a dispute nobody raised at day 30 has grown a story around it by day 150. How long commercial debt collection takes walks through why the age of the invoice decides more than the agency does.
The objection I hear most is that placing an account means giving up on the customer. In my experience it is closer to the opposite. A demand from a licensed, certified agency, under its own name, moves your invoice from the bottom of the customer's pile to the top, and most of the time the customer pays and keeps buying, because the hard conversation was with us and not with the salesperson they like. Howard Updegraff wrote about whether sending an account to collections loses the customer, and the answer on commercial accounts is usually no, provided the agency works for a share of what it recovers and has every reason to leave your customer able to buy from you again.
What you send matters as much as when. How to place an account with a commercial collection agency is the checklist; the core of it is the same file you built in month one. We take commercial accounts from $1,000 to hundreds of thousands of dollars, ideally under 120 days past due, and we work them on contingency, which means no recovery, no fee. Third-party B2B collection is the service page if you want to see how a placement runs, from the first demand through the investigative work our collectors do on the debtor's real financial situation. We do not handle consumer or retail debt; if the account is owed by an individual rather than a business, we will say so on the first call and point you elsewhere.
When does legal action make sense, and what does it actually change?
Rarely, and only when three things are true: the balance justifies the cost, the documentation would hold up, and the debtor is still trading with income or assets that could pay a judgment. An account should have 120 to 180 days of collection effort behind it first, so the attorney starts with a developed file instead of a cold one.
Prospects often tell me they already work with an attorney, as if that settles the question. It settles a different question. An attorney is the right tool for the small share of accounts that need a lawsuit; a collection agency is the right tool for everything before that, and most accounts never get past it. The accounts that land on my desk having gone straight to counsel at day 60 are often the ones where nobody ever found out whether the debtor could pay a judgment in the first place.
That is the question that decides legal action, and it is why our collectors spend the first months on it. By the time we would consider recommending suit, the file carries months of contact history, what we have learned about the business's current status, ownership, banking relationships and litigation history, and the documents organized for counsel. We weigh the size of the balance, the strength of your paperwork and whether the debtor has the income or assets to make a judgment worth having. Then we tell you plainly, and nothing is filed without your authorization. Legal Forwarding Edge is how that handoff works: the account moves to an experienced collection attorney in our network, C2C keeps coordinating and reporting, and the rate you agreed at placement does not go up because the file went legal.
What legal action changes is leverage and time. A suit, and a judgment after it, opens tools a collector does not have, such as garnishment and liens against the debtor's assets, with the specifics set by the state where the debtor is. It also adds months and cost, which is why the economics are checked first. If legal action becomes necessary, recoverable fees and costs are determined under applicable state law and are ultimately subject to the court, which is one more reason to get the file right before, not after. Laws vary by state, and this is how we frame the decision with clients, not legal advice.
When should you stop chasing, and what should change so it does not happen again?
Stop when the debtor has filed for bankruptcy, which turns the account into a claim with a deadline, or when the business has closed with nothing left to pursue. Then fix the front end: a signed credit application with clear terms, credit checks before terms are extended, and dated steps in house so the next account never reaches day 180.
Not every account should be chased to the end, and knowing when to stop is part of the sequence. A bankruptcy filing changes the account completely: direct contact stops, and the question becomes how and when to file your claim. Our guide to what to do when a customer files for bankruptcy covers the deadlines. A business that has closed and left nothing behind is a write-off, and the sooner your accountant knows, the better. We will tell you when we think an account falls in either group, because collector time spent on it is time a collectible account needed.
The more useful conversation is about why the account got to that point, and it almost always comes back to the front end. The customers who end up at day 180 are usually the ones who were never checked before terms were extended, or who signed nothing that said what late meant. A credit application that runs the checks before terms are extended is the cheapest collection tool there is, because it stops the account from existing. Clear terms in writing settle the later arguments about service charges, collection costs and disputes before they start.
Then look at capacity. Most of the companies I talk to do not lack a process; they lack the hours to run it, so the 15, 30 and 60 day contacts happen when someone has a free afternoon. If that is the honest picture, first-party accounts receivable outsourcing runs those contacts under your own name on a schedule, which means fewer accounts ever reach the third-party step at all. And when one does, you will know the sequence, you will have the file, and you will place it at 100 days instead of 200.
C2C Resources has collected commercial accounts in all 50 states since 2002, about 25,000 claims a year, from our offices in Atlanta, Georgia and Metairie, Louisiana. We are certified by the Commercial Law League of America, endorsed by the International Association of Commercial Collectors, carry a $500,000 surety bond and hold collection licenses in the states that require them. Yes, we collect internationally; talk to us about your specific account.
Have an account that has reached the point of no answer?
Send us the aging and whatever paperwork you have. We will tell you where the account sits in this sequence, what we would do next, and whether it belongs with us at all.
Frequently asked questions
How long should I wait before sending a business account to collections?
Place it at 90 to 120 days past due, after your calls, a credit hold and one final demand with a date the customer ignored. Most accounts reach us closer to 180 days, and the recovery lost in those two months happens at the debtor, not at the agency. If the customer has stopped answering altogether, or shows signs of closing or changing its name, place it sooner.
Can I add interest or a service charge to an unpaid business invoice?
Only when your terms and your state allow it. If your invoices are due upon receipt, some states' statutes allow a charge with nothing in writing; verify that state's statute before you add one. If you extended credit terms such as net 30, a service charge or interest has to be in the written credit agreement the customer signed. Laws vary by state, so check before you bill it.
Can a collection agency collect if there is no signed contract?
Usually, yes. Purchase orders, emails confirming the order, delivery receipts, invoices the customer accepted without objection and a history of prior payments can establish the debt. Organize that trail now rather than in month six. The account is harder without a signed credit application and the terms you can enforce are narrower, which is the argument for getting one signed before the next order.
Will placing the account with a collection agency end the customer relationship?
On commercial accounts it usually does not. The conversation moves away from your salesperson to a licensed third party, the invoice moves up the customer's pile, and most customers pay and keep buying. An agency paid a share of what it recovers has every reason to leave your customer able to do business with you again. Tell us when you want the relationship protected and we work the account that way.
What if the business that owes me has closed or filed for bankruptcy?
A bankruptcy filing stops direct collection and turns the account into a claim with a filing deadline; get the notice to whoever handles your claims the day it arrives. A business that has closed may still be reachable through its owners, successors or assets, which is what skip tracing and our investigative work are for. Some accounts produce nothing, and we will tell you when we think that is the case.