Increasing your Chances of Collecting Outstanding Invoices

I wish every small business that all its clients and customers always pay what is owed.  Unfortunately, we know this not to be true.  At a certain point, all small businesses face the dilemma of either writing off an unpaid invoice or trying to collect it in court.  But there are measures you can take to increase the likelihood of collecting outstanding invoices. One is a written agreement, the other, less known legal weapon, is an “account stated.”

Enter into a Written Agreement

The first building block of a successful collection system is a written agreement with the customer that sets forth how much is owed, when it has to be paid and how much interest will accrue on unpaid invoices.  The agreement could also add incentive discounts for paying on time or paying early.

Establish an Account Stated

But there is something else that you can do today to make a future court action for any outstanding invoice go smoother.   Your billing practices have to make sure that every outstanding account qualifies as a so-called “account stated.”   Once you are in court, an account stated cuts off any complaints by your delinquent customer that the service or product that you sold to him or her was defective.

An account stated requires that:

You regularly send invoices to your customers detailing the amount and any interest due; If payment is not made after the first invoice, you keep sending updated invoices at regular intervals.

That’s it.   If your attorney can show the above and that the delinquent customer did not object to the invoices and/or made some partial payment on the outstanding invoice, your attorney can get a quick judgment on a so-called account stated.   The law interprets the customer’s silence in response to the invoices as his or her agreement to pay the stated amounts in the invoice.  Since he or she did not object to the invoices then, he or she should not be allowed to raise problems later.  Thus, the debtor’s only defense on an action for collection of an invoice would be that he or she actually did object to the invoices.  But general allegations are not sufficient under the law.  The debtor has to detail the specifics of when, how, and/or to whom he or she objected to the invoices sent.  A failure to do so enables your attorney to immediately move for a judgment on the amount due, which dramatically reduces the cost and time involved in ultimately collecting on the debt.