Debt Collection

Unpaid Invoice Debt Collection: When and How to Use Collectors

Mar 31, 2026

7 mins read

You've sent emails. You've made phone calls. You've sent formal demand letters.

The invoice is 60+ days overdue and they're either ignoring you completely or making promises they don't keep.

You're done being patient. You're done wasting your time.

Now you're wondering:

Should I hire a debt collector?

The answer isn't always yes. But sometimes it's the right move.

Let me show you exactly when debt collection makes sense, how to choose an agency, what the process actually looks like, and what to realistically expect.

Because debt collection isn't a magic bullet. But it can recover money you'd otherwise never see.

When Debt Collection Actually Makes Sense

Most business owners wait too long to use debt collectors.

They see it as a "last resort" after trying everything else for months.

Wrong approach.

Debt collection should be part of your systematic escalation process, not a panic move when you're desperate.

Use Debt Collectors When:

The invoice is 50+ days overdue

You've tried email follow-up (days 1-28), phone calls (days 29-35), and formal demand letters (days 35-50).

The amount is over $1,000

Most agencies won't take smaller amounts because the commission isn't worth their time.

You've sent formal demand letters with no response

If they didn't respond to your formal letter stating you'd engage debt collectors, they're not going to pay voluntarily.

They're avoiding all communication

Multiple emails and calls with zero response. They're deliberately ignoring you.

They've broken payment plan promises

They agreed to a payment plan, made the first payment, then ghosted you on the rest.

You don't want to spend more time on this

Your time is worth money. If chasing this invoice is costing you more in time than you'll recover, hand it to professionals.

You want professional leverage without upfront costs

Debt collectors work on commission. You pay nothing unless they collect.

DON'T Use Debt Collectors When:

The invoice is under $500

Commission will eat most of what you recover. Not worth it for anyone.

The client has gone bankrupt or shut down

If they have no assets and no income, debt collectors can't help. You're wasting their time and yours.

There's a legitimate dispute about the work

If they're disputing the quality of work or the invoice amount, debt collectors can't resolve that. You need to sort out the dispute first.

The invoice is less than 30 days overdue

Way too early. Try systematic follow-up first. See our email template guide.

You haven't tried phone calls or formal letters yet

Debt collection is escalation, not your first move. Work through the progressive system first.

The relationship is salvageable and valuable

If this is a good client who's having a temporary cash flow issue and you want to keep working with them, debt collectors will burn that bridge.

How Debt Collection Actually Works

Let me walk you through the real process, not the theoretical one.

Step 1: You Hand Over the Debt

You contact a debt collection agency and provide:

The original invoice
Any contracts or agreements
Email correspondence showing you tried to collect
Phone call notes
Formal demand letters you sent
Any promises they made but didn't keep

The more documentation you provide, the better.

Step 2: The Agency Verifies the Debt

They'll review your documentation to make sure:

The debt is legitimate
You have proof the work was done
You attempted to collect
There's no obvious dispute
The debtor has assets or income

If they don't think they can collect, they'll tell you. Good agencies don't take cases they can't win.

Step 3: Initial Contact

The agency sends a formal demand letter on their letterhead.

This usually gets more attention than your letters because:

It's from a third party (escalation is real)
Debtors know this can affect their credit rating
Collection agencies have legal powers you don't

Timeline: Usually within 3-5 days of you engaging them.

Step 4: Phone Calls and Negotiation

If the letter doesn't work, they start calling.

Professional collectors are good at:

Finding people who don't want to be found
Getting through gatekeepers
negotiating payment plans
Creating urgency without violating harassment laws

Timeline: Ongoing over 30-60 days.

Step 5: Reporting to Credit Bureaus

In Australia and the US, unpaid commercial debts can be reported to credit agencies.

This affects the debtor's credit rating, making it harder for them to:

Get loans
Get credit from other suppliers
Rent commercial property
Win new contracts

This is serious leverage.

Most businesses will pay before it gets reported.

Step 6: Legal Action (If Necessary)

If phone calls and credit threats don't work, some agencies will:

File in small claims court on your behalf
Get a judgment against the debtor
Pursue garnishment or asset seizure

Not all agencies offer this. Ask upfront if they pursue legal action or just do phone collection.

Step 7: Payment and Commission

When they collect (if they collect), they take their commission and send you the rest.

Typical commission rates:

25-40% depending on debt age and size
Older/smaller debts = higher commission
Newer/larger debts = lower commission

Example:

Debt: $10,000
Commission: 30%
You receive: $7,000

Is getting $7,000 better than getting $0? Usually yes.

How to Choose a Good Debt Collection Agency

Not all collection agencies are the same.

Here's how to choose one that will actually help, not damage your reputation.

Questions to Ask Before Hiring:

1. What's your commission rate?

Typical range is 25-40%. Be suspicious of anyone charging over 40% or under 20%.

2. Is there a setup fee or monthly fee?

Most agencies work purely on commission (you only pay when they collect).
Avoid agencies that want upfront fees - they might not be motivated to actually collect.

3. What's your success rate?

Good agencies collect on 30-50% of accounts they take on.
If they claim higher, they're probably cherry-picking easy cases.

4. Do you pursue legal action or just phone collection?

Some agencies only make calls. Others will file in court if needed.

5. What debtor information do you need?

They should want comprehensive documentation. If they say "just send us the invoice," they're not serious.

6. How long before you report to credit bureaus?

Most wait 30-60 days. Earlier reporting creates urgency but might seem aggressive.

7. What's your process for disputes?

If the debtor claims the work was faulty, how does the agency handle it?
You need to know they won't damage your reputation by being unreasonable.

8. Can I see your license?

In most jurisdictions, debt collectors must be licensed. Ask to see it.

Red Flags to Avoid:

❌ Agencies that want large upfront fees - They should work on commission

❌ Aggressive or threatening tone - They represent your business. If they're unprofessional, it reflects on you

❌ Guarantees of collection - Nobody can guarantee they'll collect. Be suspicious of promises

❌ Won't provide references - Good agencies have happy clients who'll vouch for them

❌ Vague about their process - You should understand exactly what they'll do

Reputable Agencies by Region:

Australia:

Dun & Bradstreet (national, corporate-focused)
Credit Corp (large agency, good for $5,000+ debts)
Australian Receivables (small to mid-sized debts)
Panthera Finance (specialises in SME debt)
Lion Finance (good for smaller amounts)

United States:

IC System (national, B2B focus)
Rocket Receivables (modern approach, tech-friendly)
Credit Control Corporation (established, good reputation)
Brennan & Clark (legal-backed, goes to court)
Summit Account Resolution (focuses on maintaining relationships)

New Zealand:

Baycorp Collections
Credit Services (NZ) Limited

Ask for references and check reviews before committing.

The Reality: What to Actually Expect

Let me be honest about what debt collection can and can't do.

The Good News:

30-50% collection rate on legitimate debts

If you have solid documentation and the debtor has income/assets, you'll probably recover something.

Professional handling

Good agencies know how to create urgency without violating laws. They're better at this than you are.

Your time back

Once you hand it over, it's off your plate. No more chasing, no more stress.

Legal leverage

Credit reporting and court action are tools you can't easily use yourself.

Better than nothing

$7,000 after commission is better than $0 after months of trying yourself.

The Bad News:

60-70% of accounts won't collect

Even good agencies can't collect from people who have no money or assets.

Commission eats your recovery

You'll only get 60-75% of what's actually collected. The rest is commission.

It takes time

2-3 months minimum. Sometimes 6+ months. Don't expect instant results.

Relationships are done

Once you engage debt collectors, that client relationship is over. They won't work with you again.

No guarantees

You pay nothing upfront, but you might also get nothing back if collection fails.

Realistic Scenarios:

Scenario 1: Debtor with Assets (70% chance of success)

They have a business, income, assets. They're just avoiding payment.

Agency collects: $8,000 of $10,000 debt
Your recovery after commission (30%): $5,600

Scenario 2: Debtor with Cash Flow Issues (40% chance of success)

They want to pay but genuinely don't have money right now.

Agency negotiates payment plan: $10,000 paid over 6 months
Your recovery after commission: $7,000

Scenario 3: Debtor with No Assets (10% chance of success)

They've shut down, declared bankruptcy, or have no income.

Agency tries for 90 days, can't collect anything.
Your recovery: $0 (but you paid nothing to try)

Small Claims Court: The DIY Alternative

Before you engage a debt collector, consider small claims court yourself.

It's cheaper and you keep more of what you recover.

Small Claims Court in Australia

Limits by State:

NSW: Up to $10,000 (Local Court)
Victoria: Up to $10,000 (Magistrates' Court)
Queensland: Up to $25,000 (QCAT)
South Australia: Up to $12,000 (Magistrates Court)
Western Australia: Up to $10,000 (Magistrates Court)
Tasmania: Up to $5,000 (Magistrates Court)
ACT: Up to $10,000 (Magistrates Court)
NT: Up to $25,000 (Local Court)

Filing Costs: Typically $100-300 depending on amount and state.

Process:

File a claim form (simple, no lawyer needed)
Serve the claim on the debtor (prove they received it)
Attend a hearing (usually 2-4 months after filing)
Get a judgment (if you win)
Enforce the judgment (garnish wages, seize assets)

Pros:

Cheaper than debt collectors (you keep everything you recover minus small court costs)
Formal legal process creates serious pressure
You're in control

Cons:

Takes time (2-6 months from filing to collection)
You need to do the paperwork and attend hearings
Winning judgment ≠ getting paid (you still need to enforce)

Small Claims Court in the United States

Limits by State (Examples):

California: $10,000 ($5,000 for businesses)
New York: $5,000 ($10,000 in some courts)
Texas: $10,000
Florida: $8,000
Illinois: $10,000

Filing Costs: $30-200 depending on state and amount.

Process:

File complaint in appropriate court
Serve defendant (registered mail or process server)
Attend hearing (30-60 days later usually)
Receive judgment
Enforce through wage garnishment or asset seizure

Pros:

Low cost, no lawyer required
Formal legal record
Enforceable judgment

Cons:

State-specific rules (research required)
Takes time
Enforcement can be tricky

When to Use Small Claims Court Instead of Debt Collectors:

✅ Debt is under $10,000
✅ You have clear documentation
✅ Debtor has assets in your jurisdiction
✅ You're willing to spend a few hours on paperwork and hearings
✅ You want to keep 100% of what you recover (minus small court costs)

Lawyers: When Professional Legal Help Is Worth It

For large debts ($20,000+) or complex situations, hiring a lawyer might make sense.

When to Hire a Lawyer:

The debt is substantial ($20,000+)

Legal costs are high ($200-500/hour), so only worth it for large amounts.

The debtor has significant assets

If they own property or have substantial income, a lawyer can help seize it.

There's a dispute involved

If they're claiming the work was faulty or the invoice is wrong, you might need legal representation to resolve it.

The contract is complex

Construction contracts, IP licensing, long-term service agreements - these need legal expertise.

You need to move fast

Lawyers can get injunctions, freeze assets, or pursue emergency remedies faster than debt collectors.

What Lawyers Cost:

Hourly Rates:

Australia: $250-600/hour depending on experience and location
US: $200-500/hour

Typical Process:

Initial consultation: $300-500
Letter of demand: $500-1,000
Court filing and representation: $3,000-10,000+

Example:

Debt: $30,000
Legal costs: $5,000
You recover: $25,000
Net recovery: $20,000 (67% of original debt)

Compare to debt collector: Debt: $30,000
Collection: $30,000
Commission (30%): $9,000
Net recovery: $21,000 (70% of original debt)

In this case, debt collector might actually be cheaper.

Only use lawyers when:

The debt is very large ($50,000+)
There's a legal dispute
The debtor is hiding assets
You need injunctive relief

When to Just Write It Off

Sometimes the smartest business decision is to write it off and move on.

Write It Off When:

The amount is too small to justify further effort

Is $500 worth 10 hours of your time? Probably not.

The debtor has no assets

Can't get blood from a stone. If they're bankrupt or shut down, move on.

It's been 90+ days and you've tried everything

Debt collectors, formal letters, phone calls - nothing worked. Time to let it go.

Your mental health is suffering

I've watched people obsess over $800 invoices for months. The stress isn't worth it.

The cost of recovery exceeds the amount owed

If legal costs will be $3,000 to recover a $2,000 debt, that's not smart business.

The $800 Invoice Test

Ask yourself:

"If someone gave me $100 right now to forget about this invoice completely, would I take it?"

If yes, write it off. The invoice has become about principle, not economics.

Your time and mental energy are worth more than the money.

How to Write It Off Properly:

Document the decision

"Invoice #12345 for $2,500 written off on [date] after 90 days collection attempts including emails, phone calls, formal letters, and debt collection engagement. Client has no assets and is non-responsive."

Claim as bad debt for tax purposes

Talk to your accountant. Bad debts are usually tax-deductible.

In Australia: Claim as bad debt in your BAS.
In US: Deduct on Schedule C or business tax return.

Learn from it

Why did this go bad? Client vetting? Payment terms? Project scope?

Use it to strengthen your systems.

Actually let it go mentally

Stop checking if they paid. Stop thinking about it. Move on.

The worst thing is writing it off but continuing to obsess.

Your Strategic Framework: The Debt Collection Decision Tree

Here's how to decide what to do with unpaid invoices:

Days 1-28: Email Follow-Up

→ Use systematic email follow-up (or Invoice Nudge automation)
→ Collection rate: 55-64%

Days 29-35: Phone Calls

→ Call them directly, have a human conversation
→ Offer payment plans if cash flow is the issue
→ Collection rate: Additional 10-15%

Days 35-50: Formal Demand Letters

→ Send formal business letters
→ State consequences (debt collection, credit reporting, legal action)
→ Collection rate: Additional 5-10%

Day 50+: Decision Point

If debt is under $500: → Write it off (not worth pursuing)

If debt is $500-$2,000: → Try small claims court yourself (keep 100% of recovery)

If debt is $2,000-$20,000: → Engage debt collection agency (30-50% chance of recovery, 60-75% kept after commission)

If debt is $20,000+: → Consider lawyer (but compare costs to debt collector commission)

If debtor has no assets/income: → Write it off (you won't collect regardless of method)

The Invoice Nudge Approach: Prevent Debt Collection from Being Necessary

Here's the reality:

Most invoices that reach debt collection could have been collected earlier with systematic follow-up.

Debt collection is expensive (commission or legal fees) and burns relationships.

The better approach: Catch invoices before they reach day 50.

This is what Invoice Nudge does:

Systematic email follow-up at days 7, 14, 21, 28
Drafts appear in your actual Gmail/Outlook
You send from your real email address (not a system)
Checks email history to avoid redundant follow-ups
Catches 55-64% of overdue invoices before they need escalation

Users report:

Legal firm: 5/9 overdue invoices recovered before needing debt collectors
Marketing agency: 3/5 overdue invoices recovered in first week
Average 14.7 days faster payment

Most invoices get paid with proper follow-up. Debt collection is for the stubborn remaining percentage.

Learn more about Invoice Nudge or start your 14-day free trial.

Your Action Plan: Using Debt Collection Effectively

If you've got invoices 50+ days overdue right now:

This Week:

Identify which invoices are 50+ days overdue and over $1,000
Gather all documentation (invoices, contracts, emails, letters sent)
Research 2-3 reputable debt collection agencies
Get quotes and ask the key questions from this guide

Before You Engage:

Send one final demand letter giving them 7 days to pay
Call them one last time
Make it crystal clear: "If I don't hear from you by [date], I'm engaging debt collectors"

After You Engage:

Provide the agency with comprehensive documentation
Stop contacting the debtor yourself (let the agency work)
Follow up with the agency every 2-3 weeks for updates
Be patient - it takes 60-90 days minimum

Long Term:

Implement systematic follow-up for days 1-28 so fewer invoices reach debt collection
Tighten payment terms (deposits, shorter payment windows)
Screen clients more carefully before taking them on
Track your collection rate monthly

The Bottom Line on Debt Collection

Debt collection agencies can recover money you'd otherwise never see.

But they're not magic. They work best when:

✅ The debt is substantial ($1,000+)
✅ You've tried everything else first
✅ The debtor has assets or income
✅ You have solid documentation
✅ You're willing to burn the relationship
✅ You're patient (2-3 months minimum)

Expected outcomes:

30-50% of accounts will collect something
You'll keep 60-75% after commission
It takes 60-90 days on average
The relationship is over

Better alternatives when possible:

Small claims court for debts under $10,000 (you keep 100%)
Systematic follow-up earlier so it doesn't reach this stage
Writing it off if the amount is small or debtor has no assets

The real key: Prevention.

Most invoices that reach debt collection could have been collected in weeks 2-5 with proper systematic follow-up from your actual email address.

Debt collection is for the stubborn remaining percentage that won't pay no matter what.

Don't let invoices sit ignored for 60+ days. Follow up systematically. Escalate appropriately.

And when you've tried everything else, debt collectors can be the final tool to recover what you're owed.

Related Resources

Want to prevent invoices from reaching debt collection? Check out these guides:

Want to avoid debt collection entirely? Invoice Nudge catches 55-64% of overdue invoices with systematic follow-up at days 1-28. Most invoices get paid when you follow up consistently from your real email before they reach day 50. Start your 14-day free trial - setup takes 3 minutes.