A customer owes you money and is not paying. The invoices are past due, the calls and emails go unanswered, and the promises to pay keep coming without the payment. The question is what to do next.
There are two real paths: a lawsuit, or traditional collections. They cost different amounts and end differently. Picking the right one comes down to how much is owed, whether the customer is actually disputing the debt or just not paying it, whether the customer has assets worth chasing, and how strong your underlying claim is. The harder problem is usually making whichever path you choose actually produce a check.
Traditional collections
Traditional collections proceed without filing a lawsuit:
Demand letters. Written demand for payment, typically specifying consequences if payment is not made. Most collections cases start here. Effective demand letters identify the debt, attach supporting documentation, and specify a deadline.
Direct negotiation. Direct discussions with the customer about payment terms, payment plans, settlement of disputed amounts, and similar arrangements.
Account statements and aging analysis. Documentation of the debt’s age and the customer’s payment history.
Payment arrangements. Agreements for installment payment, deferred payment, or partial payment to settle the account.
Pre-suit settlements. Resolution of disputed amounts without filing suit.
Collections work best for:
- Undisputed debts. When the customer acknowledges the debt but has not paid.
- Smaller debts. When the cost of litigation would exceed the value of recovery.
- Cash-flow problems vs. dispute. When the customer’s problem is cash flow rather than disagreement with the amount.
- Cases where the relationship matters. When preserving the business relationship is more important than maximum recovery.
Collections can be handled in-house, through collection agencies, or through collection attorneys. The firm’s companion Texas Collections practice (texascollections.com) handles the legal side of collections work.
Litigation
When collections do not produce results, or when the case profile calls for litigation from the start:
Filing the lawsuit. Standard breach of contract or account-stated claim filed in the appropriate court.
Service. The defendant must be served with the petition. Service issues sometimes delay cases.
Default judgment. When the defendant fails to answer, default judgment may be available. Many simple collection cases resolve through default.
Answer and counterclaims. When the defendant answers and the case becomes contested, ordinary litigation proceeds.
Discovery. Document requests, interrogatories, depositions when needed.
Motion practice and trial. Summary judgment for clear cases; trial for genuinely disputed cases.
Judgment. When successful, the judgment is the foundation for collection.
Post-judgment collection. See From Lawsuit to Judgment to Collection for the detailed framework.
Litigation works best for:
- Contested debts. When the customer disputes liability or amounts.
- Larger debts. When litigation cost is reasonable relative to recovery.
- Solvent debtors. When recovery is realistic after judgment.
- Cases supporting fee recovery. When Chapter 38 or contractual provisions support attorney’s fee recovery.
- Cases where relationship is over. When there is no ongoing business relationship to preserve.
Choosing the path
Several factors drive the choice:
Size of debt. Smaller debts (under perhaps $50,000) often do not justify litigation costs. Larger debts typically do.
Contested or undisputed. Undisputed debts where the customer simply has not paid often resolve through collection efforts. Contested debts typically require litigation.
Strength of underlying claim. Cases with clear documentary support and few defenses are litigation candidates. Cases with weaker support may benefit from negotiated resolution.
Customer’s financial position. Cases against financially distressed or insolvent customers may not justify litigation cost. Cases against solvent customers with reachable assets often warrant aggressive enforcement.
Attorney’s fees recovery. When Chapter 38 or contractual fee provisions support recovery of attorney’s fees, the cost-benefit analysis shifts substantially toward litigation.
Time horizon. Collections can produce results in weeks or months; litigation typically takes 6 to 18 months for contested cases and longer for complex disputes.
Business relationship. When the relationship is salvageable and worth preserving, collection negotiations preserve options that litigation closes. When the relationship is over, the choice tilts toward litigation.
Attorney’s fees considerations
Texas Civil Practice and Remedies Code Chapter 38, as amended by HB 1578 effective September 1, 2021, provides for prevailing-party attorney’s fees in contract claims against individuals and organizations. The 2021 amendment expanded the statute’s coverage from “individual or corporation” to “individual or organization,” covering LLCs and other entity types that had been outside the original framework.
The fee recovery substantially affects the cost-benefit analysis:
- Plaintiff perspective. The recoverable fees offset litigation costs when the case is successful.
- Defendant perspective. The fee exposure increases the cost of losing, often producing settlement leverage.
- Settlement implications. The fee exposure becomes part of settlement calculations on both sides.
See Attorney’s Fees Recovery in Texas.
Hybrid approaches
Many cases use both approaches in sequence:
Collections first, litigation later. Try collections; file suit if collections does not produce results.
Pre-suit settlement after demand. Demand letter, brief negotiation, settlement before filing suit if possible.
Filing pressure. File suit but offer immediate settlement to avoid the contested-case timeline.
Settlement during litigation. Filed cases that settle during the litigation, often early after the customer realizes the cost of contesting.
The hybrid approaches often produce the best outcomes, extracting most of the value of litigation pressure without incurring all of the cost.
Time-sensitive considerations
Statute of limitations. Four years on most contract claims. Cases approaching limitations should be filed promptly to preserve rights.
Customer financial deterioration. When the customer’s financial position is deteriorating, delay increases the risk of uncollectibility. Acting quickly preserves recovery options.
Asset dissipation indicators. When the customer is moving assets, transferring to affiliates, or restructuring, emergency relief and immediate filing may be warranted.
Bankruptcy proximity. When customer bankruptcy appears likely, action before filing may preserve rights that bankruptcy would limit.
Getting paid, not just getting a judgment
We start with the only question that matters in a non-payment case: can this customer actually be made to pay? A judgment against a judgment-proof customer is paper. Against a solvent customer with reachable assets, aggressive litigation earns its cost. We run the litigation alongside our companion Texas Collections practice, moving cases between the two as the profile develops, and we push attorney’s fees recovery under Chapter 38 and any contractual provision. That recovery reshapes both the economics and the settlement leverage. Collection is built into the case from day one, not bolted on after a win.
A liability fight you win but cannot collect is a loss with better paperwork. We would rather know up front whether the money is there.
Frequently Asked Questions
When should a Texas business sue versus pursue collections?
The choice depends on the size of the debt, the strength of the underlying claim, whether the debt is contested or undisputed, the debtor's financial position, and the cost-benefit analysis. Undisputed debts often resolve through collection efforts (demand letters, negotiation, payment arrangements) without litigation. Contested debts, where the customer disputes amounts, asserts defenses, or denies liability, typically require litigation to establish entitlement to recovery. Smaller debts often do not justify litigation costs; larger debts often warrant it.
What attorney's fees are recoverable in Texas non-payment cases?
Texas Civil Practice and Remedies Code Chapter 38 provides for prevailing-party attorney's fees in claims based on contract against an individual or organization. Following HB 1578 (effective September 1, 2021), the statute applies to claims against organizations including LLCs and other entities, not just corporations. Specific contractual fee provisions may also apply. The recoverable fees can substantially offset the cost of litigation when the case is successful and the debtor is collectible.
What is the statute of limitations on unpaid invoices in Texas?
Four years from accrual for breach of contract under Texas Civil Practice and Remedies Code section 16.051. For accounts on which money is owed for a specific stated price, the limitations period generally begins with the date the invoice became due. Open accounts (running accounts where charges and payments are added over time) have different accrual considerations. The four-year period is firm, claims filed after limitations are barred regardless of merit.