Sending a late account to collections is a big decision. Should you refer a client to collections, or should you handle it yourself?

    • Wait at least 90 days after your invoice is due to send a nonpaying client to collections.
    • Before sending a nonpaying client to collections, you should take steps yourself to receive payment, such as calling the client and sending the client debt collection letters.
    • During the debt collection process, both you and the collection agency should refrain from contacting the debtor at their workplace, contacting the debtor if they’ve hired an attorney, and threatening legal action.
    • This article is for business owners who are considering sending a non-paying client or customer to collections.

The decision to send someone to collections is one that should be given serious consideration. Federal law governs how you and collection agencies you hire can and cannot attempt to collect a debt.

In this guide, we explain the rules you should follow to keep your business out of hot water when pursuing unpaid debts, and we walk you through how to send someone to collections while complying with the law.

What does it mean to send someone to collections?

To send someone to collections means to hire a collection agency to recover the person’s unpaid debt to you. If you’re trying to reach a non-paying client or customer yourself through your usual communication channels, or you’ve sent a client several letters stating their account is past due, that isn’t sending them to collections.

When should you send someone to collections?

Many experts recommend waiting 90 days after your invoice’s due date to send someone to collections. You can ask the non-paying client to pay their debt once the due date arrives – you just can’t refer them to collections at that point. Instead, you can take several steps to try and get paid.

Steps to take before sending someone to collections

In the 90-day period spanning when an invoice is due and when you refer the client to collections, consider doing the following :

1. Call the debtor.

A professional, to-the-point phone call can remind the client of their debt and show them that you intend to collect your debt. During the call, use a friendly but firm tone, refrain from scolding the client and explain how they can pay their debt.

2. Send debt collection letters.

You can send debt collection letters to a non-paying client either after you call them, or you could skip straight to this step. Your first letter should have the same friendly yet firm tone you would use on the phone, while reminding the client of their debts. Later letters can state your intention to send the client to collections or pursue legal action.

3. Resend your invoice with added late fees.

Sending a revised invoice with an added late fee (or sometimes warning a client that you plan to send such an invoice) can lead to payment. In this case, you won’t have to send the client to collections.

4. Offer a settlement.

Sometimes, it’s best to end a dispute with a pay-out that, though smaller than the original debt, resolves the conflict. Given how expensive collections can be, a settlement might result in more money for you.

5. Go to small claims court.

If the above steps haven’t resulted in payment, you can take your client to small claims court if the debt you’re owed is smaller than your country’s small claims maximum. You don’t need a lawyer to appear with you in small claims court, and if your client doesn’t appear, you automatically win the case.

6. Hire a lawyer.

If the debt is too large for small claims court, you can hire a lawyer to bring your case to court. This step doesn’t precede the collection process – instead, suing your non-paying client replaces the collections process. However, opting for collections, rather than suing a customer, may be preferable, since – although both options can be expensive – collection agencies may cost less (while saving you more time).

What you shouldn’t do in the collections process

Whether you hire a collection agency or handle collections yourself, all debt collection processes must comply with the federal regulatory bodies. Violating a federal law can make you and your collection agency appear untrustworthy, and it can give your debtor a stronger argument if they decide to take you to court.

Make sure that neither you nor your collection agency does the following during the collections process :

1. Call the debtor around the clock.

Debt collection calls may only occur within a certain time frame during the day following federal regulatory laws in the debtor’s time zone. An exception, though, is if the debtor asks to schedule a call with you or your collection agency outside these times.

2. Call the debtor’s workplace.

A debtor can request that you or the debt collection firm not contact them at their workplace. Following federal regulatory laws, you and your collection agency must comply with this request.

3. Repeatedly contact the debtor’s family and friends.

Following federal regulatory laws, you or the collection agency can only contact family or friends if contact details are provided, and you can only do so to locate the debtor. At no point may you or your agency reveal that the debtor owes you money or hold another party responsible over the debtor’s owings.

4. Neglect to verify the debt.

Collection agencies are required to send the debtor a validation notice within five days after first contacting a debtor. Before hiring a collection agency, verify with the agency that they are experienced in sending debt validation notices.

5. Threaten legal actions beyond lawsuits.

A collection agency cannot sue a debtor on your behalf, nor can it seize a debtor’s property or garnish their wages. It can indicate that an account is in collections on the debtor’s credit report, and they can regularly contact the debtor (except in the ways described above), but that’s all it can do. It’s up to you if you want to bring the case to court.

Tips on hiring a collection agency to handle debts for you

If you decide to send a client to collections, here are some tips to keep in mind when evaluating which collection agency you should hire :

    • Agency specialties. An agency that is well versed in recovering debts from B2B clients may struggle to do the same for B2C debts.
    • Qualifications and certifications. A trustworthy debt collection agency have appropriate certifications and licensure provided by a federal regulatory body.
    • Tactics. Ask your agency to explain the techniques they typically use to collect debts and how they will communicate with you throughout the collections process.
    • Insurance. Collections work is risky and aggressive, so you want to make sure you’re not held liable for the agency’s actions. Check with the agency that they have errors and omissions insurance; if they do (and show you proof), you’re off the hook.
    • Contracts. Ask the agency how binding a contract is and what happens if you choose to break it. Ask if you can review a contract before agreeing to work with them.
    • Costs. Hiring a collection agency is a last resort. Clients whom you send to collections will presumably no longer be your clients. It’s also expensive. Consider whether sending the debt to collections is worth the amount you’ll pay to have the debt collected. If it isn’t, keep trying the other methods listed above, then reassess your best path forward.

About Kollect Systems

Kollect Systems is an innovative tech platform provider with BankTech and FinTech software solutions which leverage AI based decisioning and workflow technologies to help lenders perform Debt Collections & Recovery (BankTech) processes effectively and for mid-size to large scale enterprise companies (FinTech), to automate Receivables, e-Invoicing & Payments better.

Kollect’s Solutions :

    • KollectApps for Lenders (BankTech) 
    • KollectValley for Finance (FinTech)
    • KollectRepo 
    • Data Integration & Analytics

Schedule a Free Consultation


Got a Question?

We’d love to hear from you. Send us a message and we’ll respond as soon as possible.

Kollect Systems is an innovative tech platform provider with BankTech and FinTech software solutions which leverage AI based decisioning and workflow technologies to help lenders perform Debt Collections & Recovery (BankTech) processes effectively and for mid-size to large scale enterprise companies (FinTech), to automate Receivables, e-Invoicing & Payments better.

Product & Services 


Copyright © 2022 Kollect Systems Sdn. Bhd.      |      Privacy Policy