To recover unpaid invoices, confirm your state’s deadline to sue hasn’t run, gather your contract and billing records, send a formal demand letter, and then escalate — to mediation or arbitration if your contract requires it, to small claims court for most amounts, or to a collection agency if you’d rather not handle it yourself. Winning is only half the job; garnishing wages, levying bank accounts, or placing a lien on property is how you actually get paid.
Confirm You Still Have Time to Sue
Every state sets a deadline for filing a breach-of-contract claim, and once it passes the court will dismiss your case no matter how clean the evidence is. Written contracts carry a window of 3 to 15 years depending on the state, with 6 years being the most common. Oral agreements are shorter, typically two to four years.
The clock usually starts the day the debtor misses payment. Some states restart it if the debtor makes a partial payment or acknowledges the debt in writing, even years later. Moving to a different state can also change which deadline applies.
That reset rule cuts both ways. If a small payment came in and you’re counting on it to buy time, check your state’s law before relying on it. And if you’ve been sitting on an old invoice, waiting can permanently kill your right to collect.
Gather Your Documentation
Every step below relies on the same evidence file. Pull it together before you contact the debtor again:
- The signed contract or agreement, showing the terms, pricing, and payment schedule both sides agreed to.
- Every invoice you sent, with invoice numbers, dates, itemized descriptions, and totals.
- A communication log with the date, time, method, and substance of each call, email, and text about the overdue amount.
- Proof you delivered — shipping confirmations, signed delivery receipts, project completion reports, or client sign-offs.
If you end up in court, you’ll need the debtor’s exact legal name. For a business, that means checking your state’s secretary of state database for the registered entity name, which often differs from the trade name on the invoice. Getting it wrong can derail the case. You also need a current physical address for the debtor or its registered agent, because court papers have to be formally delivered.
Send a Formal Demand Letter
A demand letter is your last try before things get expensive. It also builds the paper trail judges look for showing you gave the debtor a clear chance to pay.
State the total balance, including any interest or late fees your contract allows. List the invoice numbers, the original due dates, and what you provided. Set a firm deadline — usually 15 to 30 days from the date of the letter — and say plainly that you’ll pursue legal remedies if the balance isn’t paid by then. Attach copies of the invoices so the debtor can’t claim confusion about what’s owed.
Send it by certified mail with return receipt requested, and keep the postal receipt and the signed green card. A well-drafted demand letter resolves a surprising number of disputes on its own; debtors who ignored casual reminders often take a formal letter seriously once litigation is on the table.
Mediation or Arbitration
Before you file anything in court, check the original contract for a dispute-resolution clause. The Federal Arbitration Act makes written arbitration agreements “valid, irrevocable, and enforceable,” so an arbitration clause can force you out of court whether you want to be there or not.1Office of the Law Revision Counsel. 9 U.S. Code 2 – Validity, Irrevocability, and Enforcement of Agreements to Arbitrate
In mediation, a neutral third party helps you and the debtor negotiate. The mediator has no power to decide, but a signed settlement becomes an enforceable contract. It fits situations where you want to keep the business relationship or where there’s a real disagreement about the quality of what you delivered. Private mediation on a straightforward invoice dispute often runs a few hundred dollars, typically split between the parties.
Arbitration is closer to a private trial: the arbitrator hears evidence and issues a binding decision with the weight of a court judgment. It’s not cheap. JAMS charges a $2,000 filing fee for a two-party dispute, with arbitrator fees on top.2JAMS. Arbitration Schedule of Fees and Costs For a small invoice, the cost alone can exceed what you’re chasing. If your contract has no arbitration clause, small claims court is almost always cheaper.
File in Small Claims Court
Small claims court is built for this kind of dispute: a straightforward money claim, usually handled without lawyers. Dollar limits vary by state, running from $2,500 to $25,000, with most states capping claims between $5,000 and $10,000. Filing fees typically fall between $30 and $75.
You file by submitting a claim form to the court clerk, in person or electronically, and paying the fee. The clerk assigns a hearing date and issues summons documents that have to be formally served on the debtor. You can’t hand these over yourself. Most jurisdictions require a professional process server, the sheriff’s office, or certified mail, and server fees usually run $20 to $100. A proof-of-service document then has to be filed with the court. Skip that step or serve the papers incorrectly and the judge can dismiss the case before hearing any evidence.
Bring the whole evidence file to the hearing — contract, invoices, communication log, delivery confirmations, the demand letter, and the certified mail receipt — organized chronologically. The judge will hear both sides and often rules the same day.
Filing also invites a counterclaim. The debtor may allege the work was defective, that you didn’t deliver what was promised, or that you overcharged. Counterclaims generally have to be filed and served before the hearing, and the judge considers both claims together, so be ready to answer any performance issues the debtor might raise.
Hire a Collection Agency
If you’d rather hand the file off, a collection agency takes over contact with the debtor and works on contingency, collecting a percentage of what it recovers. Rates run from about 15% to 50% and climb steeply as the debt ages: accounts under 90 days might cost around 20%, while debts more than a year old can hit close to 50%.
One point trips up a lot of business owners. The Fair Debt Collection Practices Act applies only to consumer debts, meaning obligations incurred for personal, family, or household purposes.3Office of the Law Revision Counsel. 15 U.S. Code 1692a – Definitions If you’re chasing an unpaid invoice from another business, the FDCPA doesn’t apply.4Consumer Financial Protection Bureau. Fair Debt Collection Practices Act Procedures The business debtor doesn’t get the federal rights to validation or communication limits that consumers have, and the agency operates with fewer federal guardrails. Some states have their own commercial collection rules, so don’t assume there are none.
When the debt is a consumer debt, the agency has to follow the FDCPA and its implementing regulation, Regulation F. That means no harassment, no misleading statements about the amount owed, calls restricted to 8 a.m. to 9 p.m., and written verification on request.5eCFR. 12 CFR Part 1006 – Debt Collection Practices (Regulation F)
Collect on the Judgment
Winning in court doesn’t put money in your account. A judgment is a piece of paper that says the debtor owes you; extracting the money takes separate steps. This is where many creditors quit, which is a mistake. Judgments stay enforceable for years — 5 to 20 depending on the state — and can usually be renewed.
Wage Garnishment
If the debtor is employed, ask the court to garnish their wages. Federal law caps garnishment at the lesser of 25% of disposable earnings for the week or the amount by which those earnings exceed 30 times the federal minimum wage. At $7.25 per hour as of 2026, that protects the first $217.50 per week.6Office of the Law Revision Counsel. 15 USC 1673 – Restriction on Garnishment Some states set lower ceilings. Garnishment continues each pay period until the judgment is satisfied.
Bank Levies and Property Liens
With a writ of execution, a levying officer can freeze and seize funds in the debtor’s bank account. You give the court written instructions identifying the bank, and the officer serves a notice of levy. There’s a time limit: in many jurisdictions the levy has to be executed within 180 days of the writ’s issue date.
You can also place a lien on real property the debtor owns. A recorded judgment lien blocks a sale or refinance until your debt is satisfied. Liens typically last 10 to 20 years depending on the state, and can usually be renewed if the debt is still outstanding.
Debtor Examination
If you don’t know where the debtor works or banks, ask the court to order a debtor examination. The debtor has to appear and answer questions under oath about income, employer, bank accounts, vehicles, and other assets, and you can subpoena financial records for the hearing. What you learn tells you which collection tool to use next. Courts generally allow one examination every 120 days.
Writing Off What You Can’t Collect
When an invoice is truly uncollectible, the tax treatment depends on your accounting method. If you use the accrual method and already reported the invoice as income, you can claim a bad debt deduction in the year the debt becomes worthless. You need to show reasonable collection efforts, but the IRS doesn’t require you to go to court if a judgment would be uncollectible anyway.7Internal Revenue Service. Topic No. 453, Bad Debt Deduction
If you use the cash method, as most small businesses and sole proprietors do, you generally can’t deduct the unpaid invoice. You never reported the income, so there’s nothing to write off.7Internal Revenue Service. Topic No. 453, Bad Debt Deduction
If you forgive or cancel $600 or more in debt, you have to file Form 1099-C with the IRS and send a copy to the debtor.8Internal Revenue Service. Instructions for Forms 1099-A and 1099-C That formally closes the door on future collection, so don’t file it casually.