People often ask what our process is for most debt-collection type matters. So, here it is:
Step 1: The key to all debt collection matters is sufficient and proper documentation. So, first step is making sure you have a complete file. The burden of proof differs based on whether your claims are for a breach of contract claim, unjust enrichment claim, or account stated claim (discussed in a separate post), but in general you want signed contracts, invoices, statements, estimates, and correspondence indicating there was an agreement in place.
Step 2: Send invoices and statements periodically and consistently. That means weekly or monthly based on your standard practices. Make sure your invoices are complete: date, project, address being sent to, method of delivery, etc.
Step 3: Send a soft demand letter notifying the client/customer that there is an outstanding balance due, the number of days it is past due, that payment is due at this time, and providing them with the quickest means of paying that balance due. Give people options. Offer payment plans or discounts if payments are made quickly. Always state you’re making this offer “for settlement purposes only”.
Step 4: After a period of time lapses (say 30 – 60 days) you should have a demand letter sent, that is at least slightly stronger, but still professional. That letter should state the that payment is due immediately, the account is past due and that if they fail to make payment in X days, that you shall refer the account to collections.
Step 5: Refer the account to collections, preferably a law firm. Your attorney will send a demand letter, notifying the customer/client that money is due at this time and if payment is not made within 7 days, that the attorney is authorized to proceed to collect the debt.
Step 6: When a demand letter from a lawyer fails, I like to send a letter with a Summons and Complaint attached to it, indicating that we are serious about moving forward if payment is not received immediately. I find that a demand letter in and of itself doesn’t do that much 60% of the time unless you have a Summons and Complaint attached to it.
Step 7: Commence a lawsuit. Hopefully you have a contract that contains some of the key provisions to help you collect debt and minimize exposure such as a legal fees provisions, limited liability provision, or arbitration provision.
Debt collection isn’t a one-size fits all but this guide is a great first step in helping you put together a proper debt collection procedure and process.
