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What should I do to make sure I collect business debts?

On Behalf of | May 16, 2022 | Business Law

Many Texas businesses supply products or services to other businesses instead of directly to consumers.

As with any other transaction, the business that provided the goods or services expects to get paid for them. On the other hand, in business-to-business transactions, a payment up front policy might be unrealistic.

Because extending credit is commonplace in the business world, one of the reasons a business in the Collin County suburbs may have to resort to litigation is that another business is not paying its bills.

Many times, there is no dispute that the bill is valid. The other business has simply run into a financial crunch or has fallen on hard economic times. Unfortunately, sometimes businesses just choose not to pay their bills because they can get away with doing so.

Skilled contract negotiation can reduce the chance of bad business debt

An effective way for a business to make sure it will receive payment for the value it provides to its commercial customers is to address billing and payment when it negotiates its sales contracts.

At a minimum, a contract should set out in detail when and how the business customer will pay its bills and what will happen if the business does not pay in a timely fashion.

To the extent allowed under Texas law, the contract can include penalties for not paying including interest, attorney fees and other assessments.

The contract should also spell out when the business can stop providing goods or services because the customer fails to pay. In some cases, the business may even wish to take some sort of collateral or deposit in order to better ensure prompt payment.

A business should have a legally reviewed debt collection program

The laws are a bit different when it comes to collecting a debt owed by another business as opposed to a private individual.

Still, the business that is entitled to payment may have a number of options available for collection.

If more basic techniques fail, one option is to file suit, obtain a judgment and then attempt to seize some of the debtor business’s property to pay off the debt.

Particularly if the other business is in financial distress, another option is to try to negotiate a compromise with the debtor. For example, the business might agree to accept an amount less than the full value of the debt in exchange for immediate payment.