Debt collection can be messy. However, at some point every business owner will need to deal with unpaid accounts. Fortunately, certain steps can be taken that may help such collection run smoothly. There are both passive and formal ways of attempting to collect debt, as well as preventive action that can be taken to help prevent the need to collect debt in the future. The following checklist is meant to help business owners throughout this process. By following the steps provided in this checklist, a business owner may be able to obtain payment while maintaining a positive relationship with the client or debtor.

Step 1: Preventative Action
Create a clear internal process on how money owed shall be collected:
When should action be taken?
What kind of action should be taken?
Evaluate all contracts and agreements. Do they:
Allow you to charge interest on overdue accounts?
Allow you to recover attorney’s fees and collections costs if you are not paid in a timely manner?
Know your services:
Do you have a system to track payment deadlines?
Do you have a system to check the assets of the debtor?
Make sure clients have a clear understanding of fees and ballpark costs prior to performance of any services.
Review invoices; make sure they are easy to read and clearly state how and when payments should be made.
Send bills and payment reminders on a regular basis.
Delegate a staff member to follow up on overdue accounts and maintain contact with the company.
Option: Offer an end of the year discount to clients who have never had an overdue invoice.
Option: Require pre-payment from consistently delinquent clients for any future services.
Step 2: Debtor Informal Action
Assess your relationship with the debtor and the debtor’s ability to pay:
If debtor is one that will do everything possible to delay payment, you may want to skip directly to Step 3.
If debtor files bankruptcy, no correspondence regarding the debt may be sent.
Determine if debtor is a business or consumer:
If business, the Fair Debt Collection Practices Act (FDCPA) does not apply.
If consumer (and you collect under different company name) FDCPA correspondence rules apply.
Keep a record of all contact with debtor (calls, letters, etc.) in case legal action is taken down the road.
Send a polite letter or email reminding the debtor that they owe money (two weeks after invoice due).
If debtor disputes the debt within 30 days, you must discontinue contacting debtor.
Mail rules: do not send postcards or any envelopes that indicate debt collection.
Follow up with a phone call to inquire about the default and see if they have any questions (30 days).
Phone rules: do not call before 8 am or after 9 pm; always provide both your name and company’s name but do not leave a message that reveals the call is a debt collection; and do not make any threats or use profane or obscene language.
Negotiate with debtor; discuss potential payment plans (require the debtor sign a confession of judgment):
Installment plan?
Lump sum compromise?
Send a written letter of warning about future discontinuation of services and then discontinue services.
Follow up with a phone call (to maintain the relationship, a partner or secretary could make this call) (45 days).
Send a demand letter (60 days).
Have attorney draft either a conciliation or district court summons. Send the client the summons, stating if a payment arrangement is not made within 15 days, you will have no choice but to file a lawsuit. In Minnesota, you can file a conciliation court claim for amounts less than $15,000 ($4,000 for consumer credit cases). Bringing a claim in conciliation court is substantially less expensive.
Step 3: Debtor Formal Action
Send applicable notice of final options and deadlines.
Try mediation or arbitration.
Hire collections agency (could take 50% of total collection).
File lawsuit (may want to bring claim in small claims court) (80 days).