📋 B2B Debt Collection Overview

When a business customer fails to pay for goods or services, you have several options under California law. A well-crafted collection demand letter is often the most effective first step, resolving many disputes without the cost and delay of litigation.

When to Use This Guide

This guide is for business-to-business debt collection in California when:

💰 Outstanding B2B Debt

A business customer owes you money for goods delivered or services rendered

🕑 Payment is Overdue

The invoice due date has passed and informal collection attempts have failed

📝 Documentation Exists

You have contracts, invoices, delivery receipts, or other proof of the debt

👥 Both Parties Are Businesses

This is a B2B transaction, not consumer debt (different rules apply to consumers)

⚠ Important: B2B vs Consumer Debt

This guide covers business-to-business debt collection only. Consumer debt collection is heavily regulated by the Fair Debt Collection Practices Act (FDCPA) and California's Rosenthal Fair Debt Collection Practices Act. If you are collecting from an individual consumer, different rules apply.

What I Can Help You Recover

💰 Principal Amount

The full unpaid invoice amount for goods or services

📈 Prejudgment Interest

10% per year under Cal. Civ. Code 3287(a) from the date payment was due

⚖ Attorney Fees

If your contract has an attorney fee clause, under Cal. Civ. Code 1717

📋 Collection Costs

If your contract provides for recovery of collection expenses

📝 California Pre-Litigation Requirements

While California does not require a formal demand letter before filing suit for most B2B debts, there are important reasons to send one and certain situations where it may be contractually required.

Why Send a Demand Letter?

💰 Often Resolves Without Suit

Many debtors pay after receiving a formal demand, avoiding litigation costs for both parties

⚖ Triggers Attorney Fee Provisions

Demonstrates you made good-faith efforts to resolve before filing suit

📋 Documents Your Claim

Creates a clear record of the amount demanded and deadline given

🔒 May Be Required by Contract

Many contracts require written notice and opportunity to cure before litigation

Check Your Contract First

Before sending a demand letter, review your contract for:

  • Notice provisions: Many contracts specify how notices must be sent (certified mail, specific address, attention to specific person)
  • Cure periods: Some contracts give the breaching party a specified number of days to cure after notice
  • Dispute resolution clauses: Check for mediation or arbitration requirements before litigation
  • Forum selection: Where must any lawsuit be filed?
  • Choice of law: What state's law governs the contract?

💡 Pro Tip: Follow Contract Notice Requirements Exactly

If your contract specifies notice requirements, follow them precisely. Failure to comply with contractual notice provisions can delay or even bar your claims. Send notices to all required addresses, use the specified delivery method, and keep proof of delivery.

Pre-Suit Steps I Recommend

  1. Informal contact - Call or email requesting payment, document the communication
  2. Payment reminder - Send a written payment reminder with the overdue invoice attached
  3. Formal demand letter - Send via certified mail with specific deadline (typically 10-15 days)
  4. Final notice - If no response, send final notice stating litigation will commence
  5. File suit or escalate - If demand is ignored, proceed with legal action

✅ Collection Letter Best Practices

An effective collection demand letter should be professional, specific, and legally sound. Here are my recommended best practices.

Essential Elements

📋 Clear Identification

  • ✓ Your company name and contact information
  • ✓ Debtor's legal name (verify against contract)
  • ✓ Reference to underlying contract or agreement
  • ✓ Specific invoice numbers and dates

💰 Specific Amounts

  • ✓ Principal amount owed (itemized if multiple invoices)
  • ✓ Interest calculation with dates and rate
  • ✓ Any applicable late fees per contract
  • ✓ Total amount demanded as of letter date

🕑 Clear Deadline

  • ✓ Specific payment deadline (date, not just "10 days")
  • ✓ Payment methods accepted
  • ✓ Where to send payment
  • ✓ Contact for questions or to discuss

⚖ Legal Basis

  • ✓ Reference to contract terms violated
  • ✓ Cite Cal. Civ. Code 3287 for interest
  • ✓ Reference attorney fee provision if applicable
  • ✓ Consequences of non-payment (litigation, credit reporting)

Tone and Approach

📝 Professional, Not Aggressive

▼

Your demand letter should be firm but professional. Avoid threats, insults, or emotional language. A professional tone is more likely to result in payment and looks better if the letter is later introduced in court. Remember that the debtor may show the letter to their attorney - make sure it reflects well on you.

📈 Specific and Documented

▼

Vague demands are easy to ignore. Include specific invoice numbers, exact amounts, interest calculations, and clear deadlines. Attach copies of invoices and the relevant contract. The more documentation you include, the harder it is for the debtor to claim confusion or dispute the debt.

🔒 Leave Room for Resolution

▼

While being firm, leave the door open for discussion. Many debts are unpaid due to cash flow issues, disputes about quality, or administrative problems. Offering to discuss the matter may reveal issues you can resolve short of litigation. Include your contact information and willingness to discuss payment arrangements.

💌 Sending Tips

  • Certified Mail, Return Receipt Requested: Creates proof of delivery
  • Email Copy: Also send via email to ensure receipt
  • Keep Copies: Retain copies of everything you send
  • Track Deadlines: Calendar the response deadline and follow up promptly

💰 Bad Debt Write-Off vs Collection

Not every debt is worth pursuing. Here is how I help clients analyze whether to write off a debt or invest in collection efforts.

Factors to Consider

Factor Favors Collection Favors Write-Off
Amount Larger debts ($10,000+) justify collection costs Small debts may cost more to collect than recover
Documentation Strong contracts, signed invoices, delivery proof Oral agreements, missing records, disputed terms
Debtor's Ability to Pay Debtor has assets, ongoing business, good credit Debtor is insolvent, bankrupt, or judgment-proof
Relationship Value No future relationship expected Important ongoing customer you want to keep
Statute of Limitations Plenty of time remaining (2+ years) Close to expiring, may not have time to litigate
Dispute Likelihood Clear-cut debt, no legitimate defenses Genuine quality issues, complex factual disputes

Decision Framework

✅ Pursue Collection When:

  • Debt exceeds $5,000 (or less with attorney fee clause)
  • You have strong documentation
  • Debtor appears to have assets or ongoing business
  • Statute of limitations has 2+ years remaining
  • No legitimate dispute about quality or performance
  • Contract includes attorney fee provision

🔴 Consider Write-Off When:

  • Debt is under $2,000 without attorney fee clause
  • Documentation is weak or missing
  • Debtor has no assets or is already in bankruptcy
  • Statute of limitations is about to expire
  • Legitimate quality or performance disputes exist
  • Collection costs would exceed potential recovery

Tax Considerations for Write-Offs

📈 Bad Debt Deduction

If you use accrual-method accounting, you may be able to deduct bad debts as a business expense. Consult with your tax advisor about:

  • When a debt becomes "worthless" for tax purposes
  • Documentation requirements for the deduction
  • Partial vs. total worthlessness
  • Whether to attempt collection before claiming the deduction

⚠ Hybrid Approach

Sometimes the best strategy is to send a demand letter (low cost) before deciding whether to escalate. A demand letter costing $450 may result in full payment or a settlement offer, giving you better information about whether further collection efforts are worthwhile.

🚀 When to Escalate to Litigation

If your demand letter does not result in payment, you have several escalation options. The right choice depends on the amount at stake and the debtor's response.

Escalation Triggers

🚫 No Response

Debtor ignores your demand letter entirely and does not respond by the deadline

🔴 Refusal to Pay

Debtor responds but refuses to pay without legitimate justification

🕑 Broken Promises

Debtor promises to pay or proposes a payment plan but fails to follow through

⚠ Asset Dissipation

Debtor appears to be hiding or transferring assets to avoid payment

Litigation Options by Amount

⚖ Small Claims Court (Up to $12,500)

▼

California Small Claims Court handles claims up to $12,500 (as of 2024). Advantages include:

  • Low filing fees ($75-$100)
  • No attorneys allowed (you represent your business)
  • Fast resolution (typically 30-70 days)
  • Simplified procedures and evidence rules

However, you cannot recover attorney fees in small claims, and some jurisdictions limit businesses to fewer claims per year. Best for straightforward debt collection with good documentation.

⚖ Limited Civil Court ($12,501 - $25,000)

▼

Limited Civil division of California Superior Court handles claims between $12,501 and $25,000. Features include:

  • Attorneys permitted (and recommended)
  • Simplified discovery procedures
  • Economic litigation rules apply
  • Attorney fees recoverable if contract provides

This is often the most cost-effective forum for mid-sized collection matters where you want attorney representation.

⚖ Unlimited Civil Court ($25,000+)

▼

Unlimited Civil division handles claims over $25,000. Full civil procedures apply:

  • Complete discovery available (depositions, interrogatories)
  • Jury trial available
  • More complex procedures and longer timeline
  • Higher attorney fees but recoverable if contract provides

For significant debts, unlimited civil provides the most tools but also the highest costs. Many collection cases settle before trial.

💰 Collection Agency

▼

For debts where litigation is not cost-effective, a commercial collection agency may be an option:

  • Contingency fee (typically 25-50% of amounts recovered)
  • No upfront costs to you
  • Agency handles all collection efforts
  • May report to commercial credit bureaus

Best for older debts, smaller amounts, or situations where the debtor has disappeared. Recovery rates vary widely.

Before Filing Suit

⚖ Pre-Filing Checklist

  • Verify statute of limitations: Ensure you have time to file
  • Locate the debtor: You need a valid address for service
  • Check contract provisions: Mandatory arbitration? Venue requirements?
  • Assess collectibility: Does debtor have assets to satisfy judgment?
  • Calculate total damages: Principal + interest + fees through trial
  • Gather evidence: Contract, invoices, delivery proof, correspondence

Ready to Escalate?

I handle business collection matters at $240/hour, with $450 flat-fee demand letters. Let me evaluate your case and recommend the most cost-effective path forward.

Schedule Consultation

📄 Sample Collection Language

Copy and customize these paragraphs for your collection demand letter. Replace all highlighted placeholders with your specific information.

Opening - Standard Collection

Standard Opening Paragraph
I am writing on behalf of [YOUR COMPANY] to formally demand payment of amounts owed by [DEBTOR COMPANY]. Despite completion of all services and delivery of all goods as agreed, and despite multiple informal requests for payment, Invoice No. [INVOICE NUMBER] dated [INVOICE DATE] in the amount of $[AMOUNT] remains unpaid. This invoice was due on [DUE DATE] and is now [NUMBER] days past due.

Opening - Multiple Invoices

Multiple Invoice Collection
This letter constitutes a formal demand for payment of all outstanding amounts owed by [DEBTOR COMPANY] to [YOUR COMPANY]. As of [DATE], the following invoices remain unpaid: Invoice No. [INV-001] dated [DATE] for $[AMOUNT]; Invoice No. [INV-002] dated [DATE] for $[AMOUNT]; Invoice No. [INV-003] dated [DATE] for $[AMOUNT]. The total outstanding balance is $[TOTAL], exclusive of interest and collection costs.

Legal Basis Paragraph

California Legal Citations
Under California Civil Code Section 3287(a), [YOUR COMPANY] is entitled to prejudgment interest at the rate of 10% per annum on all amounts due, calculated from the date each invoice became due. As of [DATE], accrued interest totals $[INTEREST AMOUNT]. Additionally, pursuant to California Civil Code Section 1717 and the attorney fee provision in our agreement dated [CONTRACT DATE], [YOUR COMPANY] is entitled to recover all reasonable attorney fees and costs incurred in collecting this debt.

Demand and Deadline

Payment Demand
DEMAND IS HEREBY MADE for immediate payment of $[TOTAL WITH INTEREST], consisting of $[PRINCIPAL] in principal and $[INTEREST] in accrued interest through [DATE]. This amount must be received no later than [DEADLINE DATE - typically 10-15 days from letter date]. Payment should be made payable to "[YOUR COMPANY]" and mailed to [ADDRESS], or wired to [BANK/ACCOUNT DETAILS].

Consequences Paragraph

Consequences of Non-Payment
If full payment is not received by [DEADLINE DATE], I will have no alternative but to pursue all available legal remedies without further notice. This will include filing a lawsuit in the appropriate California court seeking the full principal amount, all accrued and continuing prejudgment interest at 10% per annum, reasonable attorney fees and costs pursuant to Civil Code Section 1717 and the parties' agreement, and any other relief to which [YOUR COMPANY] is entitled. A judgment will become a matter of public record and may be reported to commercial credit agencies.

Closing Paragraph

Professional Closing
I trust this matter can be resolved promptly without the need for litigation. If you wish to discuss payment arrangements or believe there has been an error, please contact me immediately at [PHONE] or [EMAIL]. However, I must receive either full payment or a reasonable resolution proposal by the deadline stated above. This letter is not intended to be a complete statement of all claims, damages, or legal theories available, all of which are expressly reserved.

📝 Need a Complete, Customized Letter?

I draft professional collection demand letters for a flat fee of $450. Each letter is customized to your specific situation, includes proper California legal citations, and is designed to maximize the likelihood of payment. Contact me or book a consultation.

Need Help With Business Collections?

I handle California B2B collection matters. Demand letters are $450 flat; litigation and ongoing representation at $240/hour. Let me help you recover what you are owed.

Book a 30-Minute Consultation

Or email me directly: owner@terms.law