We spend a lot of time on this blog discussing how to keep your business out of legal trouble, and generally speaking, that should still be your primary goal.
But what happens when you need to be the one to incite legal action?
Maybe you have a troublesome client who has racked up a large bill and no longer responds to communication, or a vendor who did not provide the product or service you paid them to provide and won’t take your calls anymore. While you may be loath to take legal action, sometimes there is no other option to avoid a serious financial blow to yourself and your business. Even if you have to shoulder the costs of legal proceedings, that’s still better than never receiving any of the outstanding payment. In such a case, if all other forms of communication and requests for payment have failed, legal action may be the next best option.
In this blog, we’ll discuss when it’s time to take legal action and how to go about it, whether you’re having issues with a vendor or a client:
Review the Contract
The first step is always to review the contract that you and your client signed when you began doing business. You want to know exactly, to the letter, what you agreed to and what your client agreed to and ensure that you have done your part. If there were any concerns about your performance, you will want to be able to document that those were resolved. As you review it, make note of everything your client or vendor was legally required to pay or perform under the contract, so that you know exactly what has or has not been provided. Remember, a string of emails outlining who will perform what services and what the price will be for those services can provide the basis of a contract. As such, don’t feel down if there is not a single document labeled “contract” for you to review. While having such a document makes it a lot easier for everyone, an email chain can help.
If you’re in a situation where a client or vendor owes you money for services rendered or for a product already delivered, you may be seriously worried if they stop responding and feel that they are already refusing to make payment. In this situation, however, it’s important to be patient and make sure that you’ve tried every available tactic before filing a lawsuit.
Try to find out why your client has not paid their bill, or otherwise not fulfilled their end of the contract. If they are unhappy with your performance, now is the time to find that out and attempt to make amends. If they simply cannot pay, it’s worth pursuing a payment plan option, or some other type of solution in an effort to resolve the situation informally.
Make A Final Demand
If your client continues to remain delinquent in their overdue payments, you can have your attorney send them a final warning letter that highlights that the next step is legal action. This is considered a final demand or a formal demand. This is important and is often the first thing a judge will ask to see if you do file a formal complaint. This demand should highlight the amount owed, the date payments were due on, and advise of potential legal action. In Texas, if your contract is silent about who recovers attorney’s fees, and related costs of collection, sending a demand letter can provide a second avenue to allow for the collection of such monies. Also, sometimes a well-worded letter from your attorney will cause the other side to reach out and either make the payment, or finally enter into a payment plan of some sort.
Sue In Small Claims Court
If you receive no response to your final demand for payment, you can sue in “small claims court”, known as justice court, in Texas as long as the amount in question is no more than $10,000. Small Claims Court is designed to help disputes resolve quickly, minimize the cost of collection, and has fewer rules than other types of courts. You may not need an attorney for action of this type, and the verdict is usually given immediately in the hearing.
Sue In Civil Trial Court
If the amount of debt exceeds $10,000, or if your case cannot be settled in small claims court, you’ll need to sue in a more formal court. That said, very few debt collection cases make it this far, and often the risk of a trial court case is enough to get a client or vendor to pay up immediately without ever seeing the inside of a courtroom. Depending upon how much is owed, or the nature of the dispute, you could find yourself in either a County Court at Law, or a District Court. In both of these cases, you really need an attorney to help you because of the formalities that these Courts follow, along with the complex procedural rules governing civil cases.
In both of these cases, legal action can be considered a last resort. The last thing you want to do is jump into a lawsuit without checking the contract carefully to ensure that your vendor or client won’t be able to accuse you of not holding up your end of the bargain and turn the tables. That said, it is equally important to remember that when appropriate and handled correctly, legal action can often be a necessity. If your client or vendor owes you money or hasn’t upheld their end of the contract, you can and should pursue the matter until it is settled, in or out of court.