Debt collection can be difficult and delicate, especially when dealing with businesses. Unpaid invoices and outstanding debts can disrupt your cash flow and affect your financial stability. However, it’s crucial to approach debt collection legally and professionally to avoid potential conflicts and legal issues. In this guide, we’ll walk you through the steps on how to collect debt from a business.

Don’t let unpaid debts fade into the past. Contact Weisblatt Law Firm to collect your business debts efficiently, effectively, and in full accordance with the law. Call (713) 666-1981 for a free phone consultation today. 

What Happens if a Company Goes Bankrupt?

“Bankruptcy” is a term applied to individuals, while “insolvency” pertains to companies. It signifies an inability to meet financial obligations where the value of assets falls below that of liabilities. Several factors can lead to a company’s insolvency. For instance, a common cause is poor cash flow resulting from overproduction or delayed client payments.

Now, what happens when a company becomes insolvent? The process unfolds in distinct stages. Initially, the company must promptly stop operations and make no payments. During this phase, most companies seek guidance from an insolvency practitioner to devise an exit plan.

The subsequent phase, overseen by an insolvency practitioner, is termed liquidation. Their responsibilities in this phase include resolving legal disputes, liquidating company assets, handling paperwork, and settling V.A.T. dues. This stage entails disbursing payments to creditors, which is the key mechanism for recouping funds from a shuttered business.

Steps to Collect the Debt You Are Owed from a Business

Businesses may owe you money for many reasons, whether this is related to professional fees, commissions, or contracts. Collecting the debt you are owed from a business can feel difficult, and you may be stuck when trying to get your head around the steps involved. Here are the 8 steps to follow to effectively collect the debt you are owed from a business.

  1. Review the Contract or Agreement: Start by reviewing the terms of the contract or agreement that governs the debt. Ensure that the debt is legitimate and that the business owes you the money according to the agreed-upon terms.
  2. Communicate Diplomatically: Initiate contact with the business in a professional and diplomatic manner. Often, a simple reminder can prompt payment. Send an email or call the appropriate contact person in the business’s accounts payable department.
  3. Negotiate a Payment Plan: If the business is experiencing financial difficulties, consider negotiating a payment plan. This allows them to make smaller, more manageable payments over an extended period.
  4. Send a Formal Demand Letter: If initial communication doesn’t yield results, send a formal demand letter. This letter should include the following:
    • A clear statement of the debt amount owed
    • An explanation of the debt, including any outstanding invoices or agreements
    • A deadline for payment
    • Consequences for non-payment (e.g., legal action).
  5. Consider Mediation or Arbitration: If negotiations stall, you can suggest mediation or arbitration as an alternative dispute resolution method. This can be a more cost-effective and expedient way to resolve the matter.
  6. Engage a Collection Agency: If your follow-up letters do not yield results, consider hiring a collection agency. These agencies specialize in debt recovery and can write demand letters on your behalf. Ensure the agency you choose follows ethical practices and abides by relevant laws, such as the Fair Debt Collection Practices Act (F.D.C.P.A.).
  7. File a Small Claims Lawsuit: If the debt remains unpaid, you can file a claim in small claims court. Small claims court is designed for cases involving relatively small amounts of money and can effectively resolve disputes without needing an attorney.
  8. Engage an Attorney and Consider a Lawsuit: Should all else fail, seeking legal counsel and filing a lawsuit may become necessary. The Weisblatt Law Firm, PLLC, has experience in debt collection and can guide you through the legal process and represent your interests in court.

Contact us today at (713) 666-1981 to book your free consultation. Don’t let your claim to business debt grow stale. Remember, there is a statute of limitation for commercial debt in Texas. You have four years to take legal action to collect on business debt. If, after four years, you have not filed a lawsuit to collect the debt, the debtor business may escape liability for the debt.

Keep in mind that the four-year time limit is not a deadline for collecting debt, as many believe. Instead, it is a time limit on filing a lawsuit to collect debt. Lawsuits can take years to resolve, which makes it unreasonable to require debt to be collected within four years. Instead, concrete legal action must be taken to collect the debt, which is the filing of a lawsuit. This action is what freezes the clock.

Weisblatt Law Firm works with Houston and Texas businesses at every stage to protect them from legal pitfalls and help them thrive.

How to Collect Money from a Closed Business

Collecting money from a closed business can be difficult, as the business may no longer be operational, and its assets may have been liquidated or distributed. However, if a closed business owes you money, there are still steps you can take to try and recover the debt:

Wait Until the Business Is Bankrupt

The handling of debt will occur during the subsequent liquidation phase. If this process is prolonged, you can actively initiate the company or organization’s bankruptcy proceedings, expediting your payment. Once the company enters the liquidation phase, your approach to debt recovery will hinge on the specific circumstances. Initially, the insolvent company will be compelled to liquidate its assets, with the proceeds being distributed among creditors. However, a prioritized hierarchy exists, potentially allowing you to receive payment further down the line. Initial disbursements go toward settling any bankruptcy-related fees and charges, followed by satisfying preferential creditors and those with floating charges over assets. Subsequently, unsecured creditors and shareholders are addressed.

Review Any Outstanding Contracts or Agreements

Review its terms and conditions if you have a written contract or agreement with the closed business. It may specify what happens in the event of the business’s closing. It may also outline any personal guarantees made by the business owner(s).

Contact the Business’s Bankruptcy Trustee

Once the business has filed for bankruptcy, contact the bankruptcy trustee assigned to the case. The trustee is responsible for managing the distribution of assets to creditors. While it’s possible you may not recover the full amount owed, you may receive some payment if there are assets available for distribution.

File a Proof of Claim: In bankruptcy cases, creditors are typically required to file a formal proof of claim to establish their right to receive payment. You can obtain the necessary forms from the bankruptcy court and submit your claim according to their procedures.

Explore Legal Action

If other methods fail, you may pursue legal action against the business owner(s) or former owner(s) in civil court. Contact our attorneys, who are experienced in debt collection and business litigation, to assess the viability of your case.

In cases where you’ve paid for a product or service that was not delivered, you can explore avenues such as initiating a chargeback through your bank or card provider (if paid by credit card).

How Can the Weisblatt Law Firm, PLLC, Help?

The Weisblatt Law Firm, PLLC, is a reputable law firm offering various legal services, including debt collection. If you are seeking assistance in collecting debt from a business, we can provide valuable support and expertise throughout the process. Here are several ways in which we can help you with debt collection from a business:

Demand Letters and Negotiation

We can draft and send formal demand letters to the debtor business on your behalf. These letters clearly outline the debt owed, the consequences of non-payment, and a deadline for resolution. If appropriate, we can also negotiate with the debtor to reach a mutually agreeable settlement.

Mediation and Alternative Dispute Resolution

When negotiations become challenging, we can facilitate mediation or alternative dispute resolution processes to help the parties find common ground and resolve the debt issue without resorting to litigation.

Litigation Support

We can represent you in court if litigation becomes necessary. Our attorneys are experienced in debt collection litigation and can navigate the legal proceedings on your behalf, from filing a lawsuit to obtaining a judgment.

After obtaining a judgment in your favor, we can assist in enforcing the judgment by taking appropriate legal actions, such as wage garnishments, asset seizures, and liens, to ensure you receive the owed funds.

Compliance With Legal Standards

We are committed to ensuring all debt collection efforts are conducted strictly with applicable laws, including the Fair Debt Collection Practices Act (F.D.C.P.A.) and state-specific regulations. This commitment helps protect your rights and maintain a professional and ethical approach to debt collection.

Contact The Weisblatt Law Firm, PLLC, Today

Being owed money is frustrating and can affect your business. Without expected revenue, you’re forced to make adjustments to compensate for unpaid business debt. Fortunately, there are ways to collect what is yours. Hiring a business debt collection attorney is one of the most effective and efficient.

If a business owes you and you want to collect a debt but don’t know how, contact The Weisblatt Law Firm, PLLC, at (713) 666-1981 for a free consultation.

Houston Business Contracts Attorney

Attorney Andrew Weisblatt

Mr. Weisblatt has practiced continuously since becoming licensed in 1992 and has represented businesses ranging in size from one person start-up ventures to multi-national corporations employing hundreds of people in multiple countries. From 2005 through 2009 Mr. Weisblatt was in-house counsel and chief operating officer of a multi-national corporation in the steel products industry. That in-house position provided valuable insight into how businesses work and what they actually need from their lawyers – both in-house and outside counsel. Attorney Bio