Accounts Receivable Collection: Recovering Unpaid Invoices

The legal meaning of accounts receivable centers on the right to receive payment. This right is typically established by an invoice, a purchase order, or a master service agreement. When a business performs its end of a bargain, the resulting debt becomes a legal asset that can be collected, sold, or used as collateral for financing.

The primary purpose of the commercial debt collection process is to preserve the financial integrity of the creditor. Unpaid invoices act as non-performing assets that can restrict a company’s ability to pay its own vendors, employees, or taxes. By engaging in formal collection efforts, a business converts these paper assets into liquid capital.

An invoice becomes overdue the moment it passes its maturity date. While many businesses offer a grace period, a consistent failure to pay by net-30 or net-60 milestones signals a need for a more structured receivables recovery process.

Collection becomes a legal necessity when a debtor explicitly defaults by stating they cannot pay, or when they initiate a dispute regarding the quality of goods or services as a tactic to avoid payment. In these instances, the creditor must move beyond simple reminders to protect their interests.

Most companies start with automated emails and phone calls. These efforts are designed to resolve simple oversights or minor cash flow delays without damaging the client relationship.

When internal efforts fail, a formal demand letter serves as a critical procedural rail. This document, often sent by legal counsel, outlines the unpaid invoice collection demand, the contractual basis for the debt, and the potential consequences of continued non-payment.

A creditor may file a lawsuit based on several legal theories:

• Breach of Contract: Proving the debtor failed to honor the terms of a written or oral agreement.
• Account Stated: Arguing that the debtor received an invoice and did not object to it within a reasonable time, thereby admitting the debt.
• Open Book Account: A claim based on a series of transactions recorded in a ledger where a balance remains due.

Winning a lawsuit results in a court judgment. This judgment grants the creditor power to use state-sanctioned enforcement tools:

• Bank Levies: Seizing funds directly from the debtor’s accounts.
• Property Liens: Attaching the debt to the debtor’s real estate or equipment.
• Writ of Execution: Authorizing a sheriff to seize and sell the debtor’s assets to satisfy the accounts receivable collection claim.

A common defense is the claim that the goods were defective or the services were not performed as promised. SJKP LLP performs a forensic audit of the performance records to deconstruct these claims and establish that the contractual obligations were met.

A debtor may claim a right to set-off, arguing that the creditor owes them money from a different transaction. Other challenges include claims that the person who signed the contract lacked the authority to bind the company. We focus on the technical merits of the agreement to neutralize these procedural hurdles.

The statute of limitations is the deadline for filing a lawsuit for unpaid invoice collection. These periods vary significantly by state and depend on whether the contract was written or oral. Once this window closes, the debt may become legally uncollectible in a court of law.

Beyond the statute of limitations, delays can harm a case through the degradation of evidence. Witnesses move on, and digital records can be lost. Proactive collecting accounts receivable strategies are essential to ensure that the necessary documentation is available for forensic scrutiny if the case goes to trial.