What Are the Legal Options for Collecting Unpaid Invoices?
When a customer or client refuses to pay what they owe, it doesn’t just create frustration—it can disrupt your entire business. Unpaid invoices cut into profits, impact cash flow, and tie up valuable time you could be spending on growth. For many California businesses, collecting outstanding debts isn’t just about recovering money—it’s about preserving financial stability.
Fortunately, business owners don’t have to sit back and accept missed payments. California law provides a range of legal options for collecting unpaid invoices. While some of the legal concepts involved can be difficult to understand, the Law Office of David J. Hollander in San Diego, California, can break down the practical and legal strategies that can help you.
Reviewing the Invoice and Client Relationship
Before jumping into legal action, it's important to take a step back and look at the invoice itself, along with the nature of your client relationship. Sometimes, disputes arise not from bad intent but from confusion, miscommunication, or missing details. Some important steps you should take before legal collection include:
Check your records: Make sure the invoice was sent, received, and documented properly. Confirm any delivery receipts or email logs.
Review payment terms: Look at the terms outlined in the invoice and any contract. Confirm payment deadlines, late fees, and dispute resolution clauses.
Communicate directly: Try reaching out to the client with a polite reminder. A phone call or a personalized email may clear up a misunderstanding.
Confirm delivery of goods/services: If your client is disputing the charges, you may need to provide proof that the agreed-upon work or goods were delivered.
If you’ve done your due diligence and still haven’t received payment, it’s time to consider more formal steps. California law offers several ways to press forward legally, depending on the amount owed and the willingness of the client to cooperate.
Sending a Formal Demand Letter
A demand letter is one of the simplest yet most effective tools in your arsenal. It can show the client you’re serious about collecting the debt and are prepared to move forward with legal action if needed. Here’s why a demand letter matters:
It documents your efforts: Courts often want to see that you've tried to collect the debt before filing a lawsuit.
It can prompt payment: Many clients will pay once they receive a formal letter from your attorney.
It sets a deadline: A clear due date gives the client a final opportunity to pay before facing a legal claim.
Your attorney can help draft a demand letter that’s professional, legally sound, and tailored to your specific situation. If the client still doesn’t pay, you can proceed to the next step with documentation already in place.
Using a Collections Attorney
Sometimes, simply involving a collections attorney is enough to prompt action. A letter from a law firm carries more weight than one from a business owner alone. An attorney can also guide you through the process of collecting debt legally, helping you avoid tactics that could lead to legal trouble for your business. Here’s how a collections attorney can help:
Send demand letters and follow-ups: These carry more authority than a standard notice.
Review contracts and invoices: Your attorney may uncover clauses that strengthen your claim.
Evaluate legal remedies: They’ll help you understand whether small claims court, arbitration, or litigation is appropriate.
At this point, if informal efforts have failed, the next move usually involves pursuing your claim through a legal forum.
Filing a Lawsuit for Breach of Contract
If your client agreed to pay for goods or services and failed to follow through, they may be in breach of contract. You have the right to sue for the amount owed, and possibly additional damages, depending on your contract and the impact of the missed payment. Here are some things to consider before suing:
Jurisdiction and venue: You’ll need to file in the correct court based on where the business was conducted or where the contract was signed.
Amount in dispute: According to the California Courts Self-Help Guide, if the unpaid invoice is under $12,500, you may qualify for small claims court.
Documentation: You’ll need to present contracts, invoices, communications, and any proof of delivery of goods or services.
If the lawsuit is successful, the court will issue a judgment in your favor. But winning a judgment is just part of the process—next, you have to collect it.
Enforcing a Judgment in California
Even if a court awards you money, it doesn’t mean the debtor will pay willingly. California law gives you tools to collect on a judgment, but they often require legal help to use properly. Some tools available include:
Wage garnishment: You may be able to take a portion of the debtor’s wages directly from their employer.
Bank levies: With the right court orders, you can seize funds from the debtor’s bank account.
Property liens: You can place a lien on the debtor’s property, which must be satisfied before they can sell or refinance.
Collecting a judgment can take time, and some debtors may try to hide assets. An experienced collections attorney can help uncover those assets and take steps to enforce the judgment efficiently.
Considering Small Claims Court
Small claims court is designed for simpler cases that don’t require full legal representation. In California, small business owners can use this forum for unpaid invoices as long as the amount is $12,500 or less. Some benefits of small claims court include:
It’s faster and cheaper: You don’t need an attorney to file or appear in court.
It’s accessible: California courts offer self-help services and clear filing instructions.
It can still lead to collection tools: If you win, you’ll get a judgment that can be enforced just like one from a higher court.
While small claims court works well for lower-value disputes, larger or more involved cases may need to be handled in civil court with an attorney’s help.
Using a Collection Agency
Another route for businesses is to hand over unpaid invoices to a licensed collection agency. These firms focus exclusively on debt recovery and have the systems in place to follow up with persistent calls, letters, and settlement offers.
Here are some pros of using a collection agency:
Saves you time and stress
May increase the likelihood of recovery for older debts
Often works on a contingency basis (you only pay if they collect)
Here are some cons of using a collection agency:
Agencies usually keep a percentage of the recovered amount
Some clients may feel alienated by aggressive tactics
Not all agencies are legally compliant—choose carefully
If you decide to use an agency, make sure it’s licensed in California and follows both the Fair Debt Collection Practices Act (FDCPA) and California’s Rosenthal Act.
Exploring Alternative Dispute Resolution (ADR)
Before going to court, some business owners try mediation or arbitration. These methods can save time and money, and sometimes repair relationships that litigation might damage. Here are some circumstances where ADR might be right for you:
There’s a contract clause requiring it: Many business agreements now include mandatory arbitration clauses.
You want to preserve the relationship: ADR can help settle disputes privately and respectfully.
You need a faster solution: Courts are often backlogged, while ADR can move more quickly.
A collections attorney can help you decide whether ADR is worth pursuing, especially if the amount in dispute is significant or the client relationship is ongoing.
Protecting Your Business from Future Nonpayment
While collecting on unpaid invoices is important, it’s just as important to prevent these situations in the first place. Tightening up your billing processes and legal documents can protect your business going forward. Here are some tips for avoiding unpaid invoices:
Use written contracts: Always outline payment terms, due dates, and remedies for nonpayment in writing.
Ask for deposits or partial payments: This reduces your exposure and shows client commitment.
Invoice promptly and follow up: Timely billing and reminders increase the chance of getting paid on time.
Charge late fees: Add financial consequences for missing deadlines to encourage faster payment.
An attorney can review your current invoicing practices and suggest changes to make your process more legally sound and enforceable.
Call Today
Unpaid invoices can disrupt your cash flow, strain your resources, and leave you feeling frustrated. With honest support from the Law Office of David J. Hollander, you can protect your business and avoid chasing after payments in the future. They serve clients in San Diego, California, and throughout San Diego County. Call today to get started.