Getting What You’re Owed

Published June 1st, 2021 by Akhtaradmin

Creating a Consistent Method for Collections 

By Ali A. Akhtar


A business that’s owed money and can’t collect will soon be a dead business. Having a standard operating procedure for the collection of payment is an essential aspect of any business plan. In this blog, I will outline some important steps businesses can take to ensure they collect what’s owed to them, and discuss a few alternatives:



Step 1: Send a Thirty (30) Day Notice

When you haven’t received payment from customers and reminders aren’t working, the first step is to send a thirty (30) day notice. This is the beginning step of action to remedy the problem and gives customers one final, formal reminder to pay before legal action. 

One of the reasons for a 30-day notice is to be able to recover attorney fees in the event of a lawsuit. The Texas Civil Practice & Remedies Code, Chapter 38 (see here), authorizes the recovery of attorney fees in any suit based on a contract, or goods/services rendered without a contract, provided you make the demand 30 days before filing the suit.

Sending this notice is easy -- any written method satisfies the legal requirements. Typically, businesses would send this notice via certified mail to create a record of delivery and receipt, for court. However, in modern times, there are faster and easier alternatives. Sending by fax will give confirmation of delivery. And these days, e-mail is the most common method of communication; you can easily attach a “read receipt” or delivery tracker to the message.  


Step 2: Adding Interest and/or Late Fees

Adding interest and/or late fees to past-due payments incentivizes customers to resolve their debts as soon as possible.  

However, you can’t just add interest or fees automatically. Interest or fees must be specified in your contract in order to be enforced, and that’s why it is crucial that you properly structure your contracts and have an attorney review them before use (for more information on the core business contracts, check out my previous blog, “Four (4) Core Contracts that Every Business Owner Should Know”). 

Also, certain statutes may exist which limit your ability to charge late fees. A landlord, for example, is restricted from charging late fees that exceed a stated percentage of the rent and has to fulfill certain other conditions, which are set forth in the Texas Property Code (see here). A Texas business attorney can give you the expert guidance you need to make sure you don’t get penalized for violating the law in your efforts to collect payment!



Step 3: Filing a Lawsuit

In the event a customer ignores all legal warnings, you as a business owner are faced with a difficult decision: to sue or not to sue. A detailed cost-benefit analysis should be done before filing a lawsuit, because of the time, effort, and expense required to take legal action. A consult with a Texas business litigation attorney is essential before rushing into this situation. 

Many cases can be done in small claims court, which eliminates the need for an attorney. The standard rules of civil procedure and evidence, and other formalities, don’t apply in small claims, making it possible for business owners to take the case to court themselves. The monetary limit of small claims courts (also known as “justice courts”) has recently gone up to $20,000 (Texas Gov’t Code 27.031). Prior to September 2020, the monetary limit used to be $10,000, and years before, it was only $5,000! 

Even if you intend to handle the matter in small claims court, it will greatly benefit you to review your case with an attorney and establish a plan of action. If it turns out that your dispute is complex, you may still need to have a lawyer present your case in court. 


Step 3 (Alternative): Sending to Collections 

When a customer fails to pay and you simply don’t have the time or resources to pursue them in court, collections agencies exist to help get your money. These agencies work by different methods -- some take a percentage of what they recover for you, some do it on a flat fee, and some actually purchase the debt from you at a reduced price. Collection agencies are governed by different statutes (e.g., the Federal Fair Debt Collection Practices Act and the Texas Debt Collection Act) and can be held liable for using prohibited debt collection methods such as harassing calls, visits to places of employment, etc.   

Many businesses prefer this alternative to a lawsuit because it takes the issue off their hands. 


Step 3 (Alternative): Filing a Lien 

Depending on the type of goods or services involved, a business may have even more powerful collection methods available.  For example, some contracts create security interests (i.e., collateral that can be claimed if the customer doesn’t pay). A car loan gives the lender the right to repossess the car, and a home loan gives the lender the right to foreclose on the mortgage and take the home. In these cases, the lender is a lien-holder, with a lien on the goods.

In other cases, a business that does special labor on a home or commercial property may be able to file a lien for unpaid fees. The Texas Property Code, Chapter 53 (see here), states the conditions under which a contractor, builder, plumber, landscaper, etc. may be able to file and enforce a lien on the property due to payments not made by the owner. However, this must be done very carefully and in accordance with strict laws and procedures, or else the business faces penalties on top of its past-due invoices. Once again, make sure you get the advice of a Texas attorney before trying it yourself!



One of the biggest challenges for a business is cash flow. It’s one thing to do the work, it’s another thing to get paid for it. Collecting from late-paying clients is challenging for many reasons, and this is why discussing it with an attorney and having a pre-determined and consistent method for your collections will help save you money, time, and mental energy.

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