8 Critical Steps for Small Business Debt Collection

Middle-aged couple looking at debt documents on tablet

Debt collection is one of the top 10 legal issues faced by small business owners. Prolonged debt collection efforts can cost your business time and resources well beyond the initial amount owed. There are proactive steps you can take to help decrease the need for debt collection and improve collection efforts.

As a LegalShield small business member you have the dedicated support of your LegalShield provider law firm to help with your collection efforts. If you have questions or need assistance call your LegalShield provider law firm.

  1. Payment policy – It is vital to secure your interests with policies, contracts and systems that protect your ability to collect a debt. Handshake deals and verbal agreements are difficult to enforce. It is essential to have a signed contract for any product or service for which payment will be made at a later date. Your contract or agreement should include a uniform payment policy. Your payment policy should contain exact due dates or a timeline for payment, the name of the individual or business responsible, accepted forms of payment and any potential fees or interest for delinquent payment.
  2. Accounting – Accurate and detailed accounting will help you quickly identify and deal with delinquent accounts. Your clients should always know where their account stands. Provide them with itemized invoices that include a specific due date for payment.
  3. Act quickly – Some business owners hesitate to act because they worry about upsetting customers. If a customer is delinquent, contact them immediately and consider placing a hold on their account. Allowing a past due account to continue accruing debt without giving notice will decrease the likelihood of successful collections. Send out a past due notice that includes the total amount owed, the number of days past due, the original due date and any late fees or interest owed.
  4. Follow the law – It is illegal to threaten, harass or intimidate customers who are unable to make payment. Never threaten an action you are not willing or legally allowed to take. Keep in mind, a customer who is behind today may make good on their obligation and become a valuable customer. Original creditors are generally regulated by state law, which may vary greatly. The Fair Debt Collection Practices Act (FDCPA) regulates collection agents, law firms and other third party debt collectors. Violating state or federal regulations could result in legal action. Make sure you are compliant with the appropriate laws in regard to charging interest or late fees on past due accounts. Call your LegalShield provider law firm to learn more about the laws where you do business.
  5. Call your provider law firm – Utilize your LegalShield membership benefits. One of the greatest benefits of your LegalShield small business membership is having an attorney draft collection letters on behalf of your business. The attorney may review your documentation and draft a letter directly to a debtor to formally request payment. Your provider law firm may also assist you if additional legal remedies are necessary.
  6. Documentation – You should carefully document your collection efforts. Your records should include letters and emails, as well as the dates and times of any phone calls or meetings. This documentation and your accounting records will be your primary evidence should a matter go to court. Being detailed and organized will greatly improve your chances in court.
  7. Negotiate – Some customers simply do not have the funds to make a one-time payment. Try working with the customer to determine if installment payments or a one-time payoff are feasible. You should document any agreement you make in writing and have the customer sign a copy acknowledging the terms. Your LegalShield provider law firm can help review your agreement prior to signing.
  8. Legal action – In some instances, small claims court may offer the most reliable and efficient means to resolve a collection matter. To be successful in small claims court you must be well prepared. States have varying thresholds for what amounts can be disputed in small claims court. For instance, in Virginia a claim may not exceed $5,000, while in California a claim may not exceed $10,000. If your matter exceeds the threshold for small claims court, talk to your LegalShield provider law firm. Find out the statutes of limitation for collecting debt in your state and make sure you file in a timely manner.


LegalShield provides access to legal services offered by a network of provider law firms to LegalShield Members through member-based participation. Neither LegalShield nor its officers, employees or sales associates directly or indirectly provide legal services, representation or advice. See a plan contract at legalshield.com for specific state of residence for complete terms, coverage, amounts, and conditions. This is not intended to be legal or medical advice. Please contact a medical professional for medical advice or assistance and an attorney for legal advice or assistance.