Key Steps in Your Business’s Debt Collection Process

Jun 1, 2023 7 min read
ABC Legal Services

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ABC Legal Services

Debt collection is a vital aspect of running many businesses, whether you’re a construction company seeking reimbursement for materials or a small autobody shop pursuing past-due invoices for work you’ve performed. Yet all too often debt collection is a complex and confusing process for small business owners.

From understanding the legal requirements of the Fair Debt Collection Practices Act (FDCPA) to deciding whether to continue with collections or file a claim, there are many considerations that factor into collection success.

In this blog post, we will explore how the legal process around debt collection works, key considerations under the FDCPA, points that small businesses should keep in mind when deciding whether to continue with collections or file a claim, and reasons for working with a reputable process server when giving the debtor legal notice of a claim.

How the Typical Debt Collection Process Works

Most businesses can successfully collect amounts owed within a few attempts of sending their invoice to the other party. If communicating the debt doesn’t work, sometimes the business will work with the debtor to set up a payment plan.

However, if the debt remains outstanding despite these strategies and the debtor isn’t responsive or willing to pay, then it may be time for the business to seek assistance from a collection agency. A collection agency will attempt to collect the debt on your business’s behalf, typically in exchange for a percentage of the amount collected.

It is important to work with a professional debt collector that adheres to FDCPA standards and collections best practices. The FDCPA is a federal law that sets out rules and regulations for how debt collectors can communicate with consumers and collect debts.

Some of the key provisions of the law include limitations around which hours of the day debtors can be contacted; information to include when contacting debtors, such as the amount of the debt, the name of the creditor, and information about their rights under the FDCPA; and the manner in which debtors may be contacted (for example, not using harassing or threatening language).

If someone collecting debt on your behalf violates any of the FDCPA’s provisions, you may be subject to penalties and fines. It's therefore important to work with a reputable collection agency or attorney who understands the FDCPA and can help you navigate the debt collection process in a lawful, ethical, and effective manner.

Continuing with Collections Versus Filing a Claim?

But what happens if the debt remains outstanding despite collection efforts? When other attempts haven’t succeeded, the small business may choose to file a lawsuit against the debtor to recover the debt. Litigation can sometimes be costly and time-consuming, but it may be necessary for successful debt collection for small businesses. The following should not be taken as legal advice in any way; it is merely a summary of considerations a small business owner may weigh when deciding whether to sue as a means for achieving debt recovery.

What Is the Amount Owed?

When the debt is over several thousand dollars, the business can prove that the debt is owed, and the debtor has the means to pay but is failing to do so, then litigation might be a viable option, note some legal advisors. If you work with a third-party collections agency, the agency will often conduct a pre-legal investigation of assets and recommend accounts for litigation once it has worked the accounts internally for at least 90 days with no response or refusal to pay.

The decision to pursue smaller amounts in small claims court using litigation depends on dollar limits set by the court and may be influenced by any requirements for formal legal representation (which will inherently carry cost). Also, where the debtor lives or other factors can have a major impact because of the FDCPA.

Is It Worth Attorney Fees and Other Costs?

A small business will often need to hire an attorney to represent them in the lawsuit, and the attorney will charge fees for their services. These fees can vary widely depending on the complexity of the case, the amount of time spent on the case, and other factors. The business also may have costs associated with bringing the matter to court, such as costs to file and serve the lawsuit.

Are You Confident You Have Complete Documentation?

A court will require documentation regarding the debt owed to rule in the business’s favor. The small business will likely need to provide copies of its contract, documentation of attempts to pursue the debt in accordance with collections best practices, and proof that the debt remains outstanding despite the debt collection process to date. If any of this paperwork is missing, then it might not be worth going through the time and expense of litigation, since there needs to be evidence to build a case on.

Will You Need to Have an Ongoing Relationship with the Debtor?

Bringing a lawsuit can put your business into conflict with the debtor. If the individual is still a customer, it may strain the relationship. Some businesses may therefore reserve legal action for only those debtors who are no longer active customers.

A third-party debt collector will typically exhaust several options before resorting to litigation, including reporting the debt to the credit bureau and attempting various approaches to resolve the debt out of court. However, if collection efforts fail, litigation can still be an option.

Importance of a Trusted Process Server in the Debt Collection Process

Before a consumer debt lawsuit can be filed, the creditor or debt collector may be required to send the debtor a notice informing them of their right to dispute the debt or request validation of the debt. This notice may also inform the debtor of the pending lawsuit and the consequences of failing to respond.

If a business wants to provide the debtor with a final, official demand letter or dunning letter, a process server can provide you with a professional agent for the delivery of the documents. Note that process servers are not necessarily required for the delivery of a demand letter. You’ll want to contact the court or consult a legal professional.

One you’ve filed your case, then you’ll need to give the debtor notice of the suit with a summons to appear in court with formal service of process. Laws vary by state, and sometimes even local court, on who can provide this notice. For example, some states may allow a process server to be any neutral third-party over a certain age. Others may use a sheriff to serve the documents. In other instances, the business will be able to work with a professional process server.

Depending on the jurisdiction, there also may be restrictions on the methods of service that can be used to notify the debtor of the lawsuit. For example, in some states, personal service is required, meaning that the debtor must be personally handed the legal papers. In other states, service by mail or publication may be permitted in certain circumstances. Also, service of process specific to debt-related issues can have specific requirements.

Working with a trusted process server can help small businesses navigate service of process. ABC Legal Services has a national network of process servers that ensures compliance every step of the way.

Some of the reasons businesses prefer working with ABC Legal Services include:

  • The ability to track the progress of a serve from order through completion
  • Receipt of evidence of the serve, such as photos and GPS coordinates—so the serve can withstand challenge in court
  • Fast, validated proof of service to file with the court

To learn more about how the right process server can aid debt collection for small businesses, see

Does Your Small Business Need Service of Process for Debt Recovery? Partner with the nationwide leader in collections service.

The information on this page does not constitute legal advice and is for general, informational use. Due to the changeability of laws, the information on this page may not reflect the most recent local laws. Always consult current legal and civil codes in your area for the most accurate information. 

ABC Legal Services

Written by

ABC Legal Services
Trusted by over 50,000 professionals, ABC Legal is America’s leading process server. Our cloud-based system seamlessly streamlines document delivery across all devices. With a network of 3,000+ servers spanning 50 states and 77 countries, our platform provides real-time updates for our 6 million+ annual attempts, enhancing transparency, compliance, and reliability.

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