Small Business Collections: Recovering Debts When Resources Are Limited

Small businesses face a collection paradox: the debts they can least afford to write off are also the ones least likely to justify the cost of professional recovery. A €8,000 unpaid invoice is painful for a small business's cash flow. It's also below the threshold where most collection agencies will invest significant resources on contingency terms.

This doesn't mean small businesses are stuck. It means the approach needs to be calibrated to the economics of smaller debts.

The Economics of Small Debt Recovery

Most Spanish collection agencies accept commercial cases from €10,000–€15,000 on no-win, no-fee terms. Below that threshold, the expected commission (€750–€2,250 on a €15,000 recovery at 5–15%) may not justify the agent time, field visits, and legal preparation required. This isn't a reflection of the debt's legitimacy — it's a reflection of the agency's cost structure.

For debts below €10,000, the toolkit is different but still effective:

Pre-legal attorney demand (€300–€500). A formal demand from a Spanish attorney, sent via burofax, referencing Ley 15/2010 and naming the specific court procedure that will follow. This resolves a surprising proportion of smaller debts because the debtor recognises that the creditor has engaged legal resources. At €400 against a €7,000 debt, the return on investment is strong when it works.

Monitorio payment order (€1,000–€2,000 in legal costs). For documented debts with strong evidence, the monitorio can be cost-effective even for smaller amounts. An uncontested monitorio produces an enforceable judgment in 30–45 days. If the debtor is solvent and the documentation is solid, the economics work for debts as low as €5,000–€6,000.

Juicio verbal (for claims under €6,000). Spain's simplified court procedure for smaller contested claims. Faster and less formal than juicio ordinario, with lower costs. Designed specifically for smaller disputes.

Internal Collection Best Practices for Small Businesses

Before engaging external help, maximise your internal collection effectiveness:

Invoice clearly and immediately. Send the invoice on the day of delivery or service completion. Include the exact payment deadline, your bank details, and a reference to the contractual payment terms. Delays in invoicing create delays in payment.

Follow up on day 1 of default. Not day 15. Not day 30. Day 1. A polite email or call confirming that the payment deadline has passed and asking for a specific payment date establishes that you're tracking the debt actively. Most debtors pay the creditors who follow up — and deprioritise those who don't.

Document everything. Every email, every phone call summary, every promise made. If the debt eventually requires legal proceedings, your documentation is your case. Verbal agreements and unrecorded conversations have limited legal weight in Spanish courts.

Escalate by day 30. If the debtor hasn't paid by day 30 and hasn't provided a credible commitment with a specific date, send a formal written demand referencing the contract terms and stating the consequences of continued non-payment. This creates the documented trail that supports later legal action.

Engage external help by day 60. If 60 days of internal effort haven't produced payment, the debtor has decided your pressure isn't sufficient. External capability — even a single attorney demand — changes that calculation.

Prevention for Small Businesses

Advance payment for new clients. A 30–50% advance on first orders is standard and widely accepted. It limits your exposure and tests the client's payment behaviour before you extend full credit terms.

Milestone payments for larger projects. Break payments into deliverable-linked instalments so your maximum exposure is never the full contract value.

Credit checks before extending terms. A basic check through the Registro Mercantil and debtor registries costs €20–€50 and takes minutes. Credit management tools for Spanish clients here.

FAQ

Is it worth hiring a collection agency for a €5,000 debt?

A full-service agency on contingency terms: probably not. The commission may not justify the agency's effort. A pre-legal attorney demand (€300–€500): yes. If that resolves the debt, the return is substantial. If it doesn't, you've spent €400–€500 and have a documented legal demand that supports monitorio filing if you decide to proceed.

Can I add collection costs to the debt?

Under Ley 15/2010, you're entitled to statutory late payment interest (ECB base rate + 8%) and a minimum €40 fixed recovery cost per unpaid invoice. Attorney fees and court costs are recoverable from the debtor in successful legal proceedings. The agency's commission is your cost and is not recoverable from the debtor.