How Do I Collect a Business Debt That's Owed?

Start With a Demand — and Watch the Clock

For a liquidated, undisputed sum, the cheapest and most effective first step is almost always a clear demand letter: it states the amount, the basis for it, any contractual interest, and a firm deadline, and it resolves a surprising share of debts without a court ever being involved. It also builds the paper trail you'll need later and, in many cases, satisfies a precondition to suing. The key is tone — factual and professional, not threatening — because collection conduct is regulated (the US FDCPA for third-party collectors, and provincial collection-agency and consumer-protection rules) and improper pressure can generate counterclaims.

The most important early task, though, is confirming the limitation period. Every debt claim must be started within a statutory deadline — commonly two years from when payment fell due or was last acknowledged across most Canadian provinces, and typically three to six years for written contracts in the US, varying by state. Once it lapses, the debt becomes unenforceable in court no matter how clearly it is owed. Critically, a partial payment or a written acknowledgment of the debt can reset the clock, which is both a trap and an opportunity, so pin down your deadline before doing anything else.

Disputed Debts, Corporate Debtors, and the Right Forum

Not all unpaid debts are simple collections. If the debtor genuinely disputes the amount or the quality of what was delivered, you no longer have a collection problem — you have a breach-of-contract case, and you must prove the debt on its merits (the contract, delivery or performance, and the sum owed) before any enforcement tool becomes available. Treating a disputed debt like an undisputed one — pressuring the debtor or reporting them — can also be improper. Identify honestly which kind of debt you have, because it changes the entire path.

Who owes the debt matters just as much as how much. If the debtor is a corporation, you can generally reach only the company's assets, not its owners — unless you hold a personal guarantee, a director is personally liable for a specific statutory debt, or the corporation is a sham that justifies piercing the corporate veil. Check your contract and credit application for a guarantee clause. The amount then dictates the forum: within the small claims limit (which varies by province and state, often between roughly $10,000 and $35,000), small claims court is the fast, low-cost, self-representation-friendly venue; above it, you're in a higher court where fees and procedure make a hard-nosed cost-benefit analysis essential.

Judgment Is Only Half the Job

Winning a judgment and collecting on it are two different projects, and debtors who don't pay voluntarily rarely pay a judgment voluntarily either. Enforcement is a separate set of tools you deploy after judgment: garnishing the debtor's bank accounts or wages, obtaining a writ of seizure and sale against their goods, or registering the judgment as a lien against real property. A debtor examination — compelling the debtor to disclose their assets and income under oath — is often the smartest first move because it tells you which of those routes is actually worth pursuing.

All of which is why collectability should be assessed before you spend a dollar on litigation. A judgment against a debtor with no reachable assets or income is an expensive piece of paper, and in insolvency, secured and preferred creditors are paid ahead of you. If the debtor is winding down or dissipating assets, speed and any security you hold become decisive. The disciplined sequence — confirm the deadline, demand in writing, verify the debtor and their collectability, sue in the right forum, then enforce strategically — is what turns an unpaid invoice into recovered cash.

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