To collect unpaid invoices, document the debt thoroughly, send a formal written demand with a payment deadline, file suit if the debtor still refuses, and then use court-ordered tools like wage garnishment, bank levies, and property liens to force payment. Most states give you between three and six years to sue on an unpaid invoice, and the Uniform Commercial Code generally sets a four-year deadline for claims involving the sale of goods, so moving promptly protects your right to go to court.1Consumer Financial Protection Bureau. Can Debt Collectors Collect a Debt Thats Several Years Old
Pull Your Records Together
Before you contact a lawyer or write a demand letter, build the file you would need if a judge asked you to prove the debt tomorrow. The core is the signed contract, purchase order, or written agreement spelling out price, payment terms, and delivery dates. Add every unpaid invoice, signed delivery receipt, bill of lading, or service completion certificate showing you did what you promised. For sales of physical goods, UCC Article 2 treats a buyer as having accepted the goods when they inspect and keep them, or simply fail to reject them within a reasonable time, so proof of delivery combined with the buyer’s silence can be decisive.2Cornell Law School. UCC 2-606 What Constitutes Acceptance of Goods
Keep a running log of every call, email, and letter about the overdue balance, with dates and the name of whoever you spoke to. Organize everything chronologically and prepare an account summary showing original charges, credits, partial payments, and the current balance. Clean records are what separate a winnable case from a losing one.
Find Out Whether the Debtor Can Actually Pay
A judgment against a debtor with no money is a piece of paper. Before you spend filing fees and your time in court, do a basic investigation. County property records show whether the debtor owns real estate and whether other lenders already have liens on it. Court records can reveal other lawsuits or judgments. Business registration filings show whether the company is active, dissolved, or trading under another name. Most of these records are free to search online.
If the debtor has moved or gone quiet, a professional skip-tracing service can locate a current address using public and commercial databases. The cost is usually small compared to filing a suit against someone you can’t find.
Send a Formal Demand Letter
A demand letter is the last written notice before legal action. State the exact amount owed, identify the invoice or contract behind it, and give a firm deadline — commonly 10 to 30 days. Say plainly that you will file suit if payment doesn’t arrive by that date. Send it by certified mail with return receipt, so you can prove the debtor got it.
If you’re collecting your own commercial invoices from another business, the federal Fair Debt Collection Practices Act generally doesn’t apply, because the FDCPA covers only debts arising from personal, family, or household transactions.3Office of the Law Revision Counsel. 15 USC 1692a – Definitions The FTC Act’s ban on unfair and deceptive practices still applies, though, so don’t threaten actions you won’t take and don’t inflate the amount owed.4Federal Trade Commission. Think Your Companys Not Covered by the FDCPA You May Want to Think Again If your customer is an individual consumer and you hire a third-party collector to pursue the debt, the FDCPA does apply to what that collector can say and do.5Consumer Financial Protection Bureau. What Laws Limit What Debt Collectors Can Say or Do
Try to Settle Before Filing Suit
A demand letter often opens a door. The debtor may offer a reduced lump sum, or you may be able to set up an installment plan. Put any settlement in writing and have both sides sign it, so it’s enforceable if the debtor defaults again.
Mediation
A professional mediator is a neutral third party who helps you and the debtor reach an agreement without a judge. The mediator doesn’t impose a decision; they guide the conversation toward terms both sides can live with. Mediation is faster and cheaper than litigation, and any agreement can be written up as a binding contract.
Collection Agencies
A third-party collection agency takes the chasing off your plate. Most work on contingency, keeping 25% to 50% of what they collect, with higher percentages for older or harder debts. You recover less per dollar, but you spend no additional time or legal fees.
Credit Reporting
If your debtor is an individual rather than a business entity, reporting the delinquency to a consumer credit bureau can be a strong motivator. Before you furnish information, be certain it’s accurate, and report the date the delinquency began within 90 days of furnishing the account. If the debtor disputes the information and turns out to be right, you must promptly notify the bureau and correct it. Inaccurate reporting can expose you to liability, so only report debts you can fully document.
File a Lawsuit
If the debtor still won’t pay, small claims court is often the fastest and cheapest path to a judgment. Each state sets its own dollar limit for small claims — somewhere between about $2,500 and $25,000. Larger disputes have to go to general civil or district court, which involves more formal procedures and higher costs.
You file a complaint or statement of claim in the county where the debtor lives or where the contract was performed, and pay a filing fee that usually runs $30 to $200. The court issues a summons that has to be formally served on the debtor, typically by a sheriff’s deputy or a private process server, with fees commonly in the $40 to $100 range.
Once served, the debtor has a limited window — often 20 to 30 days — to file a written response. If the debtor doesn’t respond or doesn’t show up at the hearing, you can ask for a default judgment, which is a ruling in your favor without a trial. Hearings are usually set 30 to 90 days after filing. Attorneys aren’t required in small claims court, and in some states they aren’t even allowed; you present your evidence directly to the judge.
Attorney Fees
Under the American Rule that applies throughout the United States, each side pays its own attorney fees regardless of who wins. The main exception is a fee-shifting clause in the contract itself — language stating that the losing party covers the winner’s legal costs. If your invoices or master agreements contain such a clause, you can ask the court to add your attorney fees to the judgment. Check your contract language before filing. Court costs like filing fees and service of process are usually recoverable by the winning party even without a fee-shifting clause.
Enforce the Judgment
Winning doesn’t put money in your pocket. A judgment gives you the legal authority to go after the debtor’s income and assets, but you have to use it. Federal Rule of Civil Procedure 69 provides that a money judgment is enforced through a writ of execution, following the law of the state where the court sits.6Legal Information Institute. Federal Rules of Civil Procedure Rule 69 Execution
Wage Garnishment
A wage garnishment order tells the debtor’s employer to withhold part of each paycheck and send it to you. Federal law caps the garnishable amount at the lesser of two figures: 25% of the debtor’s weekly disposable earnings, or the amount those earnings exceed 30 times the federal minimum wage ($7.25 per hour as of 2026, which protects the first $217.50 per week).7Office of the Law Revision Counsel. 15 USC 1673 Restriction on Garnishment “Disposable earnings” means what’s left after legally required deductions like taxes, Social Security, and Medicare, but before voluntary deductions like retirement contributions or health insurance.8Office of the Law Revision Counsel. 15 USC 1672 – Definitions If the debtor earns $217.50 or less per week after required deductions, you can’t garnish anything. Some states set stricter limits that further reduce what you can collect.
Bank Account Levy
A bank levy freezes and seizes funds in the debtor’s checking or savings accounts. You get a writ of execution from the court and have it served on the bank, which freezes non-exempt funds and, after any state-required waiting period, turns them over.
Not everything in the account is reachable. Federal regulations require banks to apply a two-month lookback when the account receives direct deposits of Social Security, veterans’ benefits, or other federal benefit payments. The bank calculates the total federal benefits deposited during that two-month window and protects that amount from the levy automatically, without the account holder having to file an exemption claim.9Bureau of the Fiscal Service. Guidelines for Garnishment of Accounts Containing Federal Benefit Payments
Judgment Lien on Real Property
If the debtor owns a home or other real estate, you can record a judgment lien in the county land records. The lien prevents the debtor from selling or refinancing the property without first paying the judgment. Recording fees are modest, usually $25 to $95. Judgment liens generally last 5 to 20 years depending on state law, and most states let you renew them before they expire. Even if the debtor doesn’t sell anytime soon, the lien secures your position for eventual payment.
Seizing Personal Property
A writ of execution can also authorize the local sheriff or marshal to seize non-exempt personal property such as vehicles, business equipment, or inventory and sell it at public auction, with proceeds applied to the judgment. In practice, this is less common than garnishment or bank levies, because the auction process is slow and the sale price often falls well below the property’s real value.
Post-Judgment Interest
Your judgment accrues interest from the date it’s entered until it’s paid in full. Federal court judgments use a rate tied to the one-year Treasury yield, which was approximately 3.47% in early 2026.10U.S. District Court for the District of New Mexico. 2026 Post Judgment Interest Rates State rates are set by state law and vary widely — some are fixed by statute, others float with market conditions, and recent rates have ranged from around 4% to over 10%.
If the Debtor Files Bankruptcy
A bankruptcy filing triggers an automatic stay that halts almost all collection activity the moment the petition hits the docket. You must stop any lawsuit, garnishment, bank levy, or other collection effort. Continuing to collect after the stay takes effect is a willful violation that can expose you to actual damages, attorney fees, and in some cases punitive damages.11Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay
To preserve any right to a distribution from the bankruptcy estate, file a proof of claim. In a voluntary Chapter 7 case the deadline is 70 days after the order for relief, and the same 70-day deadline applies in Chapter 12 and Chapter 13 cases. Miss the deadline and you can receive nothing, even if the estate has money to distribute.12Legal Information Institute. Federal Rules of Bankruptcy Procedure Rule 3002 Filing Proof of Claim or Interest Many Chapter 7 cases involving unsecured commercial debt don’t have enough assets to pay creditors in full, and your claim may end up partially or entirely discharged.
If the Debtor Is in Another State
If the debtor moves or holds assets in another state, you can domesticate your judgment there. The Uniform Enforcement of Foreign Judgments Act, adopted by 48 states, provides a streamlined process grounded in the Constitution’s Full Faith and Credit Clause. You file a certified copy of the judgment, an affidavit, and a small filing fee with a court in the state where the assets are. Once registered, the judgment carries the same garnishment, levy, and lien powers available to any local creditor. Domestication adds cost and time, so it’s worth doing only when you have reason to believe the debtor has real assets in that state.
If the Debtor Has Nothing to Collect
Sometimes you win and find there are no wages to garnish, no non-exempt bank funds, and no property worth seizing. People call this being “judgment-proof,” but the label is misleading. The judgment doesn’t vanish; it keeps accruing interest. If the debtor’s situation improves — a new job, a new account, a vehicle, an inheritance — you can pursue enforcement then.
Judgments carry expiration dates set by state law, usually 5 to 20 years, and most states let you renew before expiration. The practical approach is to record a lien against any real property the debtor owns, renew the judgment on schedule, and check back periodically. A court can also order the debtor to appear for a post-judgment examination, where they must disclose income, assets, and financial accounts under oath, giving you the information to enforce later.
Writing Off an Uncollectible Invoice on Your Taxes
When collection truly fails, the IRS lets you deduct the amount as a bad debt on your business return. The debt must have been included in your gross income — automatic for accrual-basis businesses — and you must have taken reasonable steps to collect. You don’t need a court judgment if you can show that pursuing one would be futile, but you do have to show the debt became worthless in the year you claim the deduction.13Internal Revenue Service. Topic No 453 Bad Debt Deduction
Sole proprietors claim business bad debts as an expense on Schedule C.14Internal Revenue Service. Instructions for Schedule C Form 1040 Corporations and partnerships follow their entity-specific return instructions. Cash-basis taxpayers generally can’t take the deduction, because they never reported the invoice as income in the first place.
If you formally forgive a debt of $600 or more, you may need to file Form 1099-C (Cancellation of Debt), which reports the canceled amount as potential income to the debtor.15Internal Revenue Service. Instructions for Forms 1099-A and 1099-C Talk to your accountant before writing off a large receivable so the timing and documentation line up with IRS requirements.