Unpaid invoice and collection letters, in both directions

11.1The law that mostly does not apply

The Fair Debt Collection Practices Act regulates the conduct of third-party debt collectors when collecting consumer debts: debts incurred primarily for personal, family or household purposes.¹ It restricts calling hours and contact, requires validation notices, and gives the consumer a claim for violations. It does not apply to a creditor collecting its own debt in its own name, and it does not apply to commercial debts. So a business chasing a business customer is generally outside it, and a business being chased for a commercial debt is generally not protected by it. State collection laws, state consumer statutes where the debtor is a consumer, and the contract govern instead.

If your business sells to consumers and uses an outside agency to collect, that agency is subject to the FDCPA, and its conduct can come back to you. Choose agencies that comply.

11.2Receiving one: a demand for a business debt

1. Check the debt. The contract, the invoices, what was delivered, what was paid, any disputes raised at the time. Do not pay a figure you have not reconciled.
2. Check the sender. The original creditor, an agency acting for them, or a buyer of the debt. Ask in writing for the basis of the claim and the account history if the figure does not match yours.
3. Dispute in writing any item that is wrong: short delivery, defective work, a credit not applied, a payment not credited. Attach the documents.
4. If the debt is right, deal with it. A payment plan proposed in writing, with dates, is usually accepted by a creditor who would otherwise have to sue. Get the agreement in writing before paying. Settle or fight: how to decide gives the method.
5. If the debt is personally guaranteed, which many business credit agreements are, the owner's own assets are exposed, and that changes the calculation.

11.3Sending one: an unpaid invoice

A demand letter for an unpaid invoice is often the step that gets a slow payer to pay, because it signals that the next step costs them more. A good one is short and specific:

• The invoice numbers, dates, amounts and due dates, with copies attached.
• The contract or terms that make the sums due, and any interest or late-fee clause.
• Any previous reminders, with dates.
• The total now due, and a date by which it must be paid.
• What happens after the date: small claims, a civil claim, referral to an agency or a lawyer, and that costs and interest will be sought where the contract or law allows.
• A way to pay, and an invitation to raise any dispute in writing before the date.

Send it by a method that proves delivery. Keep the tone factual. Threats you cannot carry out weaken the letter; stating the step you will actually take strengthens it. Do not add charges the contract does not provide for.

11.4After the letter: small claims and civil court

If the date passes, the choice is between small claims and a civil claim, and the small-claims limit decides it. The limit, the filing fee and the forms are set by state law and published on the state court's self-help site; many are written for people without lawyers, and a business can often appear through an owner or employee. Above the limit, or where the debtor disputes the work in a way that needs evidence, a lawyer's civil claim is the route. Before either, consider whether the debtor can pay: a judgment against an insolvent customer is a document, not money. The two courts, and what being served looks like from the other side, are in I have been served with a lawsuit. What happens now?

11.5Preventing the next one

Written terms signed before work starts, with payment dates, interest and a dispute clause. Deposits for new customers. Invoices sent promptly and chased on a schedule. A personal guarantee where the customer is a thinly capitalised entity. Most unpaid-invoice disputes are made in the first week of the relationship, not the last.