It’s been three months and your client still hasn’t paid his overdue bill for the work you performed. What do you do now? Fortunately, the State of Texas has laws in place that protect business owners, allowing you to collect on a debt, but only when the proper protocols are followed.
The Cromeens Law Firm provides expert guidance for business owners when it comes to debt collection, allowing you to maintain focus on your business, not your burdens.
Serial Debtors Beware
In part two of the three-part series, we will discuss the successful collection of a debt. But first, let’s examine some of the ways you can avoid the dreaded serial debtor altogether. The art of debt collection begins before any names are signed to the dotted line.
First and foremost, know the person to whom you would like to extend credit. This can be achieved by collecting some of the basic information you will need to contact the person: address, where they operate as a business (county), who they bank with, etc.
Most of the preceding items can be found via the web by performing a quick search. Some of the items should be listed on the application the person fills out prior to deciding to extend them a line of credit.
Apply Yourself
The credit application is your ticket to understanding the credit candidate. You will want to “apply” yourself and perform the due diligence required to gain the necessary information so that you can arrive at an educated decision.
In the application, include required information such as trade references, credit terms, and a personal guaranty. However, it is the personal guaranty that will grant you the most power when it comes to debt collection…if it comes to that.
The personal guaranty guarantees you’ll avoid the pitfalls when it comes to the potential for a debt collection. It shifts the burden of debt to the individual owner of a company. In the end, the personal guaranty is a negotiable term that can be determined on a case-by-case basis.
Take Interest
In the State of Texas, interest rates are capped at 10% per annum. But if neither party specifies an interest rate, then a standard 6% interest rate, beginning 30 days after the amount is due and payable, may be charged.
Be warned, though, because the State of Texas considers charging an exorbitant interest rate usurious interest, and it is illegal. Stick with the allowable limits or you could end up forfeiting the total amount you are owed.
Fees, Please
When presented, be sure your credit terms include a provision stating you’re entitled to recover attorney fees for any collection efforts. When such a provision is not included, it’ll require a 30-day demand, with notice, to recover attorney’s fees—before starting the collection process.
Try to sue an LLC for collection without a written provision and you can say bye-bye to the recovery of attorney’s fees.
How to Reduce Risk
So the individual has filled out the application and it has come back clean, eh? What now? Well, there are still things you can do to reduce risk while the credit relationship is still good:
- Record the bank name on any credit or debit cards used for payment
- Copy, and keep copies, of checks used for payment
- If the company name changes, collect the new information
If it comes down to collecting a debt, you’ll need to follow the proper steps to collect from the debtor. We’ll cover this in more detail in “Debt Collection, Part 2: Successfully Securing the Debt.”
The Cromeens Law Firm provides clients with expert navigation of Texas law in regards to debt collection. Contact one of our experienced attorneys today by calling 713-715-7334 or contact us online to discuss your options.
This article is intended as a general educational overview of the subject matter and is not intended to be a comprehensive survey of recent jurisprudence, nor a substitute for legal advice for a specific legal matter. If you have a legal issue, please consult an attorney.
