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

Business.com / Legal / Last Modified: February 22, 2017

Although there are many steps in the commercial debt collection process, it is crucial to know them before you take legal action.

According to information provided by the United States Census, businesses of all sizes provided jobs for an estimated 116 million individuals in 2012, and job availability is only one of many reasons why the success of businesses large and small is vital to the U.S. economy.

There are many aspects to running a business, but the most simple bottom line is that you provide services or products in exchange for payments collected from clients. Clients can be individual consumers or they can often be other businesses with which your company may contract.

Unfortunately, obligations under contracts may often go unfulfilled and non-payment of business to business (B2B) debts can put the success of a company in jeopardy.

In order to protect the rights of business creditors, many attorneys and companies offer commercial collection services. Such services allow business owners to continue focusing on day-to-day operations and keep them from having to constantly pursue payment for unpaid B2B debts.

There are many steps in the commercial debt collection process, which can often require legal action against a business debtor. The following are only some examples of how the B2B collection process works.

Related Article: How to Collect Overdue Bills From Good Customers

Demand for Payment

Like any other type of debt, the collection efforts of business to business debts begins with a demand letter. This initial communication is extremely important and often results in voluntary payment by the commercial debtor.

Business creditors may have requested payment from the debtor numerous times with no positive results. However, if a demand letter originates from a B2B collections attorney, the debtor may take it more seriously because they may realize that the threat of litigation exists if they continue to fail to meet their obligations.

The demand letter should do the following:

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

This option to respond serves multiple purposes, however, because when a debtor responds, a collections attorney can be sure they have the correct information for the debtor. Communications may also be attempted via telephone to inform the business owner of a collection attempt.

Related Article: Top Tips to Ensure Clients Pay on Time and Increase Your Cash Flow

Investigative Work

Because commercial collectors are not restricted by the same limitations as consumer collectors under the Fair Debt Collection Practices Act (FDCPA), many investigative tactics can be used to locate debtors and to find ways to collect payment.

Tactics like skip tracing can identify a business owner's location while other investigative methods can uncover hidden assets of the business that may be used to compensate the business creditor.

Debt Recovery Litigation

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

If you have a debt collections agency handling your matter, they will refer your case to an attorney for the legal case.

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

In order to successfully obtain a judgment in these situations, you must validate that the debt claim is valid and accurate by presenting evidence to the court. Such evidence can include:

  • 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 a debt can still be validated through circumstantial evidence.

If you successfully prove the validity of a debt and non-payment for the debt, you will likely obtain a judgment against the business debtor from the court.

Collecting on a Judgment

Simply because you have obtained a judgment for a business debt still does not mean that other business will submit payment. Instead, in many cases, you must implement ways to force collection of the judgment.

Some judgment collection tools can include securing liens on the property of the business debtor, garnishing the business assets, or obtaining a Writ of Execution to seize assets from business accounts or property owned by the business.

The Federal Reserve reports that business debt rose to $12.5 trillion in 2015 and, unfortunately, many of those debts may go unpaid. If you are a business facing outstanding commercial payments, it is important to begin the complicated business to business collections process as soon as possible.

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