Getting Paid – Debt Collections

I don't need to tell you that getting paid by your customers for whatever your small business is offering for sale should be your number one concern.  Here are some pointers for handling this most important aspect of your small business.

Prevention, Prevention, Prevention

Ask for money in advance, whenever possible.  Ask for periodic advance payments, whenever a mile stone has been reached or come up with other periodic payment dates after partial performance.  Send invoices as soon as possible.  Have an agreement with your customer that clearly, unmistakably, sets forth WHEN and HOW MUCH your customer has to pay.  More on that below.

As soon as your customer is late on payment, follow up and start the collection process.  Resend the original invoice periodically, which then, under certain circumstances (check with your lawyer), can become an "account stated" and makes it easier to ultimately collect in court.

But don't harass the customer and consider having someone else make the reminder call in order to protect your relationship with the customer.


Once a debtor is unresponsive to all your preliminary debt collection attempts (repeated invoices, calls), do some intelligence work to find out if your debtor has money or assets to pay his or her debt.  You can get a credit report on them (Permissible Purpose to get Credit Report).  

Find out if the debtor has litigation pending by checking the available court resources: For example, Civil Court of New York City, Supreme Court.  Many other courts have ways to check online whether your debtor is already a defendant in any court case.

You do this investigation to avoid spinning your wheels where a debtor is judgment proof, i.e. it would be a waste of time and money to go after them, because they have essentially nothing.


At this point, you could hire a collection agency to collect the debt for you.    They will usually charge a percentage of the debt.  If the debt is less than 90 days old, the charges may be less.  See here for one debt collection agency's rates (no affiliation, whatsoever).  This goes to show again, that making collecting your outstanding invoices a priority as soon as a customer is late, can mean a difference in actual dollars.

Going to Court

I am sorry, if you actually have to go this far.  In court, you will have to present hard facts, in particular, a legal basis for your claim for money.  In most cases, this will be an enforceable contract between you and your debtor.  As I stated above, it is crucial that you have valid and enforceable agreements with your customers.  This doesn't always mean a lengthy written agreement, it can be the terms and conditions on your website, if the customer is aware of them and agreed to them; the writing on your order forms and so forth.  Most important is that you can show that your customers agreed to your terms.  A signature is best, a click on something on your website that states "by clicking on this you agree……." may work, but this is an area where you can really use a lawyer to make sure that your customer arrangements will hold up in court.  

Aside from the legal implications, for customer relations and avoidance of surprises and disputes, it is also crucial that your customers KNOW what and when they owe you money.  So make whatever agreements or terms you have, very clear and visible.