How To Collect A Debt



Collecting an unpaid debt is a inconvenient and unwanted situation for anyone to be in. But if you are in a business that offers products or services on credit (you deliver the products or services and invoice for payment at a later date) then it is highly likely that at some stage you will be faced with a customer who will not, or claims they cannot, pay you.

When this situation arises there are some simple steps you can follow to give yourself the best chance of recovering the funds in full and avoid breaking any laws yourself during the recovery process.

1. Don’t Let It Become Personal

The last thing you want is for this to become an ugly personal battle that gets nasty. Remember you are simply running your business and if someone cannot pay don’t take it personally.

Approach the situation in a professional manner at all times. Ideally you would follow a systemised recovery process that you have set-up in your business or outsource the debt collection to a debt collection agency.

Even if the debtor – whether they be a business or personal customer – tries to make it personal and complains about their current financial hardship or gets bitter and makes personal attacks, it’s always better if you take the high road, maintain a professional tone and use the law to recover your funds.

2. Keep Meticulous Records

If you end up having to take legal action to recover the debt you will need to provide full evidence of the transaction and your efforts to recover the funds. Having all this information and documents on hand is also important in the early stages of the recovery process (sending overdue payment reminders to the customer), because when the customer sees that you have written proof of the outstanding debt they will be more inclined to make payment to avoid further action.

The type of records you will need to keep are:

  • All quotes, invoices, work orders and contract agreements
  • Copies of all written communication (generally emails) regarding the initial transaction
  • Records of all communication regarding your efforts to recover the overdue debt. This includes emails, letters and dates and times of any phones calls. Keeping this information is very important because if the situation does end up in court you will be able to show the judge that you made every effort to recover the funds before taking legal action.
  • Any other details relating to your Terms of Trade such as interest or fees that can be charged on late payments.

3. Implement A Systemised Recovery System

As I mentioned earlier, the most efficient and effective way to recover outstanding debts is to have a systemised recovery process that dictates what actions to take at as the debt becomes more and more overdue.

This is especially true if you are dealing with overdue accounts on a regular basis as you don’t want to be flying by the seat of your pants and have no consistency in your approach.

Your accounts receivables system should include:

  1. Initial reminder email before the due date
  2. An immediate overdue reminder the day it becomes overdue
  3. A 14 days overdue reminder asking for immediate payment
  4. A 30 day overdue reminder
  5. A 60-90 day overdue reminder
  6. A Letter Of Demand
  7. File a Claim With The Courts

Steps 1 and 2 can be automated through an invoicing software to save time and after that it may be more efficient and cost effective to pass the debt over to a professional debt recovery agency who offer a “No Recovery, No Fee” service.

For a more detailed explanation of how to create a accounts receivables system including what to include in each communication read “The Right Way To Collect A Debt”.


By following these 3 basic guidelines you’ll become more efficient and successful at recovering unpaid debts. You’ll likely find that overtime customers who were slow to pay begin to improve when then realise you are organised and have a good accounts receivables process.

It will also help to maintain the business relationship with any customers who eventually pay their debts and may have just been going through a short term cash flow crisis.

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