How to Collect a Business Debt: A Step-by-Step Guide

How to Collect a Business Debt (Without Destroying the Relationship or Your Sanity)

A business owes you money. You've invoiced. You've reminded. You've waited. And now you're wondering what to actually do — because everything you've tried so far hasn't worked, and the advice you've found online is either too generic to be useful or clearly written for consumer debt situations that don't apply to you.

Here's a process that works. It's the same escalation framework we use internally at Cosmopolite when assessing new cases, adapted for business owners who want to handle the first stages themselves — and know exactly when to escalate.

Step 1: Confirm the Debt Is Undisputed

Before you do anything else, establish one fact: does the debtor agree they owe you money?

In approximately 25% of the business debt cases we receive, the debtor has a reason — legitimate or otherwise — for non-payment that the creditor didn't know about. Goods arrived damaged. The service didn't match the specification. The invoice amount doesn't match the purchase order.

A single phone call to the debtor's accounts payable team will surface any of these issues within five minutes. If there's a dispute, you need to resolve it before you escalate.

If the debt is undisputed, document the verbal acknowledgment. Send a follow-up email: "Per our conversation on [date], you confirmed the outstanding balance of [amount] for invoice [number]. Please advise when we can expect payment." That email becomes evidence if you need it later.

Step 2: Send a Formal Demand Letter

A reminder is a nudge. A formal demand letter is a legal signal. The difference matters.

A proper demand letter includes: the exact amount owed (including contractual interest), the original invoice number and date, the contractual basis for the claim, a specific payment deadline (14 days is standard), and a clear statement of next steps if payment isn't received.

That last element transforms the letter from "please pay" to "pay or face consequences." The next step should be specific: "If payment is not received by [date], we will refer this matter to our collection agency." Vague threats accomplish nothing. Specific timelines create urgency.

In the UK, this letter functions as the Pre-Action Protocol's "Letter Before Action." In Germany, it's a Mahnung that triggers statutory interest. In France, it's the mise en demeure. Whatever jurisdiction you're in, a formal demand letter does legal work that a friendly email cannot.

Step 3: Make the Phone Call Nobody Wants to Make

Letters are easy to ignore. Phone calls aren't.

Within three days of sending your demand letter, call the person who can authorise payment — the financial controller, the CFO, or the business owner.

This call determines which scenario you're dealing with:

"We'll pay." Get a specific date. Follow up in writing. If that date passes without payment, escalate immediately. A broken promise to pay is the strongest signal that amicable recovery won't work.

"We can't pay right now." Ask: "When can you pay, and what amount?" A debtor who offers a realistic payment plan can be recovered through negotiation. Agree the plan in writing. Monitor it.

"We dispute the debt." Ask for specifics. If the dispute is legitimate, resolve it. If the specifics never arrive, it's a delay tactic — escalate.

Step 4: Know When to Escalate (The 90-Day Threshold)

After 90 days overdue, the dynamics change in ways that favour the debtor:

The debtor has tested your response and found it manageable. Your internal reminders have established a pattern the debtor can tolerate. A third-party agency breaks that pattern.

Recovery probability is declining. Business debts recovered at 90 days return 75-85% of face value. At 6 months: 55-65%. At 12 months: 35-50%. Every month past 90 days costs roughly 2-4% of eventual recovery.

Your time has a cost. Twenty hours chasing a €15,000 invoice is twenty hours not spent on revenue-generating activity.

Step 5: Choose the Right Collection Partner

Jurisdiction match. Is the agency capable of collecting in the debtor's jurisdiction? If your debtor is in another country, you need local presence.

Fee structure. Contingency-only is the standard. You pay nothing unless the agency recovers money. Fees range from 8-25% depending on claim age, size, and complexity.

Honest assessment. The best agencies tell you within two weeks whether your debt is recoverable. They don't string you along for six months.

Step 6: Legal Action (When Everything Else Has Failed)

The decision to litigate: is the probable recovery minus legal costs greater than zero? If yes, proceed. If no, write off and move on.

Payment order procedures (Germany, Italy, Spain, most EU countries) are fast and cheap for undisputed claims. Ordinary proceedings handle disputed claims. Small claims courts cover lower-value disputes.

Your collection agency or solicitor should present a clear cost estimate, timeline, and probability assessment before you commit.

The One Thing That Matters More Than Any Step

Timing. Every element of this process works better when deployed early. A demand letter at 45 days is more effective than one at 6 months. An agency engaged at 90 days recovers more than one engaged at 18 months.

If you'd prefer professional assessment, we'll evaluate your claims within 48 hours — for free, with no obligation.