Dealing with unpaid invoices, broken contracts, and outstanding payments is an unfortunate reality of doing business. Knowing when and how to escalate collection efforts—up to and including filing a lawsuit—can make all the difference between a business collecting what it is owed and maintaining its financial health and significant difference in recovering what you’re owed while maintaining your business’s financial health.

Before You Sue: Steps to Take to Collect Debt

1. Establish a Formalized Process for Payment Follow-Up

• The first step in managing unpaid invoices or contracts is to have a structured process for following up on payments. This should include sending reminders, making phone calls, and documenting every attempt to collect. A consistent approach not only shows your seriousness but also provides valuable evidence if the matter escalates.

2. Send Demand Letters to Collect Debt

• After initial reminders fail, send a formal demand letter. This letter should outline the amount owed, the deadline for payment, and the consequences of non-payment. Demand letters are often the final nudge that motivates clients to pay, and they serve as an important step before legal action.

3. Involve Legal Counsel Early

• If the situation remains unresolved, involve your legal counsel. Sometimes, a letter from an attorney is all it takes to prompt payment. Legal counsel can also help you understand the business relationship and the leverage points you might have, as well as assess the likelihood of successful payment.

4. Evaluate the Business Relationship

• Before escalating to a lawsuit, consider the potential impact on your business relationship. If there’s still value in maintaining the relationship, you might want to explore alternative resolutions. However, if the relationship is beyond repair and the risk of losing a customer is no longer a concern, it may be time to proceed with legal action.

When to Sue: Making the Decision to Collect Debt

Once you’ve exhausted all other options, and it’s clear that the debt won’t be paid voluntarily, it’s time to consider suing for recovery. Here’s how to approach it:

1. Determine the Appropriate Jurisdiction

• Review your contract or agreement to see if it specifies where legal disputes should be handled. If there’s no such clause, you’ll need to file the lawsuit where the customer or other party is located. Generally, state court is preferred over federal court for collection actions, as it tends to be faster and less costly.

1. Prepare Thoroughly Before Filing

• Success in litigation often hinges on thorough preparation. Make sure all agreements, contracts, and records of damages are well-organized and clearly spelled out. Being prepared allows you to move quickly with filing and serving the lawsuit, increasing the chances of a favorable outcome.

1. Move for Default Judgment

• If the other party fails to respond to your lawsuit, don’t hesitate to move for a default judgment. This is a powerful tool that can lead to quicker resolution and recovery.

Post-Judgment: Collecting What You’re Owed

Winning a judgment is only half the battle—you still need to collect. Here’s how:

1. Pursue Garnishment or Replevin

• After obtaining a judgment, work to collect on it by garnishing bank accounts, seizing assets (replevin), or filing liens on the debtor’s property. These aggressive actions can often result in quick settlements.

1. Use Aggressive Collection Actions Strategically

• Taking a firm stance on collection with troublesome accounts can pay off in other areas. When negotiating with new clients, you can cite your history of taking action on non-performing accounts, which can serve as a deterrent to future non-payment.

Deciding when to take collection action—and potentially sue—is a crucial aspect of managing your business’s financial health. By following a formalized process for payment follow-ups, engaging legal counsel early, and preparing thoroughly for litigation, you can increase your chances of recovering what you’re owed. And once you’ve obtained a judgment, be proactive in enforcing it to maximize your recovery.

If you’re facing issues with unpaid invoices or broken contracts, book a call with Adam Witkov today. As an experienced Wisconsin Litigation Attorney, Adam can guide you through the process of efficiently suing for recovery and collection, helping you protect your business’s bottom line.