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Does a Client Owe You Money? Step-by-Step Tips for B2B Debt Collection

Jennifer Post
Jennifer Post Contributing Writer
Updated Aug 02, 2022

What do you do when a client won't pay what they owe? This step-by-step guide illuminates the B2B debt collection process.

There are many aspects of running a business, but the bottom line is that you provide services or products in exchange for payment from clients. Clients can be individual consumers, or your company might do contract work for other businesses. Another reality of many businesses is that obligations under contracts may often go unfulfilled, and nonpayment of business-to-business (B2B) debts can put the success of a company in jeopardy. 

“Quite simply, B2B, or business-to-business, debt collection is the process of recovering outstanding payments from a client, rather than B2C (business-to-consumer), which involves collecting owed money from customers,” said Steve Pritchard, founder of Checklate

If the other company your business works with isn’t paying you for your services, there are processes and steps you should undertake before considering legal action, which should be the last resort for a small business.

B2B debt collection steps

“Each company should have its own set process, sometimes driven by their particular industry,” said Elliott Portman of Portman Law Group P.C. “Generally speaking, there should be a credit manager that oversees the process of granting credit and again for debt collection. Once an invoice goes over 30 days, that credit manager should be personally involved in the collections efforts, such as telephone demands and a formal written demand for payment.” 

Demand for payment

You might have already taken the real first step of sending reminders and asking for payment, but when that doesn’t work, it’s time for a demand letter. This communication is extremely important and often results in voluntary payment by the debtor. 

The debtor may take a demand letter more seriously if it originates from a B2B collections attorney, because they’ll see the threat of litigation exists if they keep failing to meet their obligations. 

The demand letter should do the following: 

  1. Inform the business that an attorney is trying to collect their debt.
  2. Give them the opportunity to respond to deny the debt.
  3. Give them the option to discuss alternative solutions to resolve the debt, including partial forgiveness or payment arrangements. 

The option to respond serves multiple purposes. Not only does it give the debtor a fair chance to challenge the debt, but it will confirm their contact information. You may also reach out by telephone to inform the business owner of a collection attempt.

Investigation of your debtors

Because commercial collectors are not subject to the same limitations as consumer collectors under the Fair Debt Collection Practices Act, you can use many investigative tactics to locate your business debtors and find ways to collect payment. The Fair Debt Collection Practices Act does not protect debtors from the party trying to collect a debt, whether it be the creditor or a collections agency. The act does, however, say that debt collectors cannot contact the debtor at inconvenient hours (before 8 a.m. or after 9 p.m.) or at phone numbers that the creditor or collector has been asked to cease calling. 

Tactics like skip tracing can identify a business owner’s location. Other investigative methods can uncover hidden assets of the client company that may be used to compensate the business creditor. 

In an article for recovery agency Brown & Joseph, Mikaela Parrick explains that skip tracing is “the process of locating a debtor who has ‘skipped’ or left town … Skip tracers are especially helpful for cases in which the debtor has failed to answer or return repeated calls and emails. Even if a client has a physical address to send collection letters to, there’s always a chance that the person they’re looking for no longer lives there.” 

While skip tracing is a viable method, “it is wise to discuss with legal counsel before taking any action in this regard,” said Dennis Sawan, managing partner at the law firm Sawan & Sawan.

B2B debt collection using a collections agency

The last option before taking legal action would be to hire a collections agency. 

“They are useful for small claims that an attorney might not take,” said Portman. “Ultimately, they can’t bring suit for debt collection, so they have limited usefulness to the creditor. A lawyer letter often has more impact on the recipient. It tells the debtor that the creditor is very serious about the situation.” 

However, collections agencies can still benefit both parties. Sawan said that a debt collection agency is a potential way to avoid the unwanted public attention of litigation and the damage a lawsuit can have on the B2B relationship. 

“Oftentimes in situations of longer sales processes, long-term relationships or higher balances, a less abrasive approach can be wise,” Sawan added, though he said businesses should prepare for mixed results with a collections agency and that the approach doesn’t always work. “In our experience as litigators, sometimes a sense of urgency is necessary to get a debtor organization to prioritize the debt at issue. This is often achieved through litigation, which increases the potential for expense by the debtor.” 

While it may seem like the best option keeps coming back to litigation, some businesses just don’t want to deal with that. 

“A debt collection agency can make the process of dealing with outstanding payments easier for your company by removing much of the responsibility and stress that comes with the issue,” Pritchard said. “If you’re forced to pursue legal action, they can also often introduce you to specialist lawyers, or they may have an in-house legal team available.” 

Keep in mind that most collections agencies take a cut of whatever they collect, asking 25% or more of the money collected, according to Pritchard. 


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Debt recovery litigation

If attempts to collect a B2B debt out of court continue to fail, you may have to file a debt recovery lawsuit against the company debtor. One benefit of a B2B collections attorney handling your collection is that, if litigation is necessary, the attorney can file a legal claim on your behalf and represent you throughout the subsequent case. 

“Lawsuits are helpful in bringing the parties to the table, and the added expense of defending a claim often adds the urgency necessary to resolve outstanding debts,” Sawan said. 

If a debtor does not respond to a lawsuit, you can obtain a default judgment against the company. If a debtor does respond, they will often deny the validity of the claim against them. 

To successfully obtain a judgment in these situations, you must validate the debt claim by presenting evidence to the court. Here are some examples of such evidence: 

  • Contracts signed by both parties agreeing to the payments
  • Canceled checks of previous payments
  • Emails that indicate concession of a debt
  • Purchase orders showing the amount owed
  • Invoices previously submitted for the debt
  • Account statements showing payment history or lack thereof
  • Any other relevant documents that demonstrate the existence and nature of the debt 

In many cases involving small businesses, the owners may have simply had a verbal agreement of the debt. Proving the debt may be more challenging in these instances, but you can still validate your claim through circumstantial evidence. If you successfully prove the validity and nonpayment of the debt, you will likely obtain a judgment against the business debtor from the court. 

However, a judgment for a business debt does not automatically mean you will see that money, so you must implement ways to force collection of the judgment. Judgment collection methods include securing liens on the property of the business debtor, garnishing their business assets, or obtaining a writ of execution to seize assets from the business’s accounts or property.

How to avoid a B2B debt collection process

“The cheeky answer would be to get cash in advance or a credit card payment in advance,” Portman said. “In the real world, you can only minimize the risk by never extending credit to a new customer without having them complete a credit application and go through a credit approval policy. Businesses should periodically review their customers for continued creditworthiness.” 

Many legal experts agree that, while strong contracts and paperwork help, nothing beats good judgment. But as far as contracts go, “provisions in contracts requiring liquidated damages, attorney fees or late fees can be a helpful deterrent to nonpayment if used correctly,” Sawan said. 

Andrew Weisblatt contributed to the writing in this article.

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Jennifer Post
Jennifer Post Contributing Writer
Jennifer Post is a professional writer with published works focusing on small business topics including marketing, financing, and how-to guides. She has also published articles on business formation, business software, public relations and human resources. Her work has also appeared in Fundera and The Motley Fool.