How to Recognize and Handle Bad Debtors in B2B

The invoice is six weeks old. You've sent two reminders and called once. The customer said "it's scheduled for next week." That was three weeks ago. Now they're not picking up the phone.

The vast majority of European SMBs deal with late payments. In most cases, it's harmless: a forgotten invoice, a bottleneck in the approval process, temporary cash flow tightness. But a small but significant share of all invoices go further. They never get paid. And in most cases, you didn't see it coming.

The difference between a late payer and a bad debtor isn't just a matter of time. It's a pattern. And the sooner you recognize that pattern, the more options you have.

What is a bad debtor?

A bad debtor is a customer who structurally doesn't pay, despite repeated reminders, formal demands, and phone calls. This isn't about a customer who forgets once or disputes an invoice. It's about a pattern of non-payment without resolution.

The distinction from a late payer is critical for your approach. A late payer responds to contact. There's an explanation, there's communication, and payment eventually follows. With a bad debtor, one or more of those elements is structurally absent.

In the Netherlands, a significant share of all B2B invoices are paid late. Nearly a quarter of SMB owners lose more than EUR 20,000 annually to uncollectable invoices. And about one in five business owners take no protective measures against bad debt at all. That combination is expensive.

How to recognize a bad debtor

Most bad debtors announce themselves. Not with an email saying "I'm not going to pay," but through behavioral changes that form a clear pattern.

Changing payment behavior. A customer who always paid on time and suddenly starts paying structurally late. Not once, but two, three invoices in a row. That's no longer an oversight.

Going unreachable. No response to emails. Phone calls go unanswered. Messages are read but never replied to. Avoidance is one of the strongest predictors of non-payment. When a customer stops communicating about an outstanding invoice, it's rarely a coincidence.

Repeated promises without results. "It's scheduled." "I'll handle it tomorrow." "Next week for sure." A new commitment every time, never an actual bank transfer. This is the most typical bad debtor behavior: just enough communication to delay the escalation process.

Unexpected disputes. A customer who never complained suddenly starts disputing invoices. Quality or delivery issues that didn't exist before. Nearly a third of B2B late payments cite a dispute as the reason. But when the dispute only surfaces at the moment you send a formal demand, it's often a stalling tactic.

Partial payments without explanation. The customer transfers an amount that doesn't match any invoice. No explanation, no reference number. This can indicate liquidity problems: the customer is paying what they can, not what they owe.

No single signal is proof of bad intent. But when you see two or more of these patterns at the same time with the same customer, it's time to change your approach.

What are your legal rights?

When a customer doesn't pay, you have more legal tools than most business owners realize. Most European companies don't exercise their right to claim interest and recovery costs. That's money left on the table.

Statutory interest

Under the EU Late Payment Directive, you're entitled to statutory interest on every overdue B2B invoice. The exact rate depends on your jurisdiction and current central bank rates. This right kicks in automatically after the payment deadline passes. You don't need to announce it in advance.

Even on a modest outstanding invoice, accrued statutory interest adds up over 90 days. It may not be a large sum on its own, but it signals to the customer that you're taking this seriously.

Recovery compensation

You're also entitled to a fixed minimum amount in recovery costs per overdue invoice under the Late Payment Directive. If your actual collection costs exceed that minimum, you can claim the difference with proof. This is a legal entitlement, not a negotiation.

Many countries have additional frameworks that allow higher collection cost recovery. The key point: you have a legal right to compensation beyond the invoice amount itself.

Formal notice of default

A formal demand letter is the legal foundation for further action. It states the exact outstanding amount, accrued interest, a reasonable payment deadline (typically 14 days), and the consequences of non-payment. Once you've sent a formal notice of default, the customer is officially in breach, and you can take legal steps.

How to handle a bad debtor

With a regular late payer, you invest in the relationship. With a bad debtor, you shift your approach: less patience, more legal weight, faster escalation.

Call instead of email

Phone contact has a much higher response rate compared to email. More importantly, a phone call tells you something email can't. Do you hear a genuine explanation and willingness to set up a payment plan? There's hope. Another vague promise, or no answer at all? Now you know where you stand.

Escalate fast

Every week you wait past day 60 reduces your chance of collection. At 60 days overdue, the write-off rate is already roughly one in ten. At 90 days, it's roughly a quarter. With a customer you've identified as a bad debtor, waiting is the worst thing you can do. Send the formal demand, send the notice of default, and set the next step in motion.

Collection agency or court?

A collection agency typically works on a no cure, no pay basis and charges a large percentage of what they recover. The average collection success rate hovers around a fraction of total claims placed. Consider carefully whether this is the right move.

Court proceedings can be a better option for uncontested claims. Many EU jurisdictions have streamlined fast-track procedures (like the European Order for Payment) that don't require a lawyer for smaller amounts. The advantage: a court order is enforceable. A collection letter is not. For larger claims, a bailiff with legal authority to seize assets can be more effective than a collection agency.

Preventing bad debtors

The best strategy against bad debtors is never letting them become customers. That sounds easier than it is, but a few measures significantly reduce the risk.

Check creditworthiness. Only about a third of SMB owners check the creditworthiness of new customers. Basic company information is often available through national business registries at no cost. For full credit reports, providers like Allianz Trade, Atradius, and Dun & Bradstreet offer risk scores and recommended credit limits.

Document payment terms. State your payment terms, statutory interest entitlement, and collection cost recovery in your general terms and conditions. This isn't unfriendly. It's the foundation for everything you can legally claim later.

Follow up consistently. Businesses that follow up on every invoice, every time, keep bad debt near zero. The average SMB sits at several percent. The difference isn't luck. It's a system: reminder on day 3 after the due date, phone call on day 15, formal demand on day 30, escalation on day 60.

The problem is that most business owners can't sustain that schedule. The majority lose revenue to late payments. Not because they don't have a right to that money, but because they don't have the capacity to follow up on every overdue amount consistently.

Detect earlier, act faster

The invoices you end up writing off are almost always the ones nobody followed up on in time. At Dunwise, we build accounts receivable software that closes that gap. Our AI voice agent calls every outstanding invoice on schedule and adjusts the tone per stage: friendly at 7 days, professional at 30, direct at 60.

The key for bad debtors: the agent has a conversation. Not a voicemail, not an automated reminder, but an actual phone call. And in that conversation, the signals surface that you'd never catch over email. Is there a dispute? The agent captures it and routes it to your team. Does the customer promise to pay? That promise is logged and followed up on. Is the phone repeatedly unanswered? That's data you can use to decide to escalate sooner.

Want to see what that means for your business? Book a demo. The sooner you spot bad debtors, the better your chances of getting paid.