A Customer Owes My Company a Large Unpaid Invoice. What Now?

First, lock down what you can prove

An unpaid-invoice claim is a breach of contract claim, and it is won on documents. Before any letter goes out, pull together the agreement (a signed contract, a credit application, a purchase order, an accepted quote, or the email chain that set the terms), each invoice, proof of delivery or completion, any acceptance or sign-off, your statement of account, and every email or text in which the customer acknowledged the debt, promised to pay, or raised a complaint.

Read the customer's complaints carefully. A dispute about quality, scope or timing is the usual reason an invoice goes unpaid, and the answer to it should be in your records before you demand payment. If the customer is right about part of it, know that now.

Present the claim in writing

Texas Civil Practice and Remedies Code section 38.002 allows a party who wins a contract claim to recover attorney's fees only if the claim was presented to the other side and payment of the just amount owed was not tendered within 30 days. Presentment does not require a particular form, but a clear written demand stating the amount owed and asking for payment does the job and leaves a record.

The letter should state the amount, how it was calculated, the contract or invoice terms that make it due, and a date for payment. It should not threaten anything you are not prepared to do. What a strong demand includes is covered in what to include in a demand letter for an unpaid invoice.

Negotiate, but on paper

Many past-due accounts are a cash-flow problem on the customer's side rather than a dispute. A payment plan can be the fastest path to the money. If you agree to one, put it in a signed writing that states the total, the schedule, that the customer acknowledges the debt, and what happens on a missed payment (the full balance becomes due). An acknowledgment of the debt in writing also strengthens your position on limitations and on any later dispute about the amount.

Be careful with partial payments marked "payment in full." Depositing a check with that notation can, in some circumstances, be argued as an accord and satisfaction that settles the whole account. Read any notation before the check is deposited and respond in writing if you reject the condition.

If you sue: the suit on a sworn account

Texas Rule of Civil Procedure 185 gives sellers of goods and services a procedural advantage. If the petition is supported by an affidavit stating that the account is just and true, that it is due, and that all lawful offsets, payments and credits have been allowed, the account is treated as prima facie evidence of the debt. A customer who wants to contest the items or the amount must file a sworn denial that meets the rule's requirements. A customer who fails to do that cannot dispute the account at trial, which often leads to an early judgment.

The rule applies to open accounts for goods sold or services rendered, and it is strict about the affidavit's contents. A sworn account petition is usually filed alongside an ordinary breach of contract count, so the claim survives even if the account pleading is challenged.

Which court

The amount decides. Texas justice courts hear civil claims up to $20,000, excluding interest, and a corporation may appear there without a lawyer under Government Code section 27.031. Above that, the case goes to a county court at law or a district court. If the customer is out of state and the claim exceeds $75,000, federal court may be an option. If the contract has a forum selection or arbitration clause, that clause controls.

Example

Suppose a Plano IT services company has a managed-services agreement with a customer at a fixed monthly fee. The customer pays for fourteen months, then stops. Four invoices are outstanding. The agreement says invoices are due in 30 days and says nothing about interest. The company sends a presentment letter stating the four invoices, the total, 6 percent statutory interest from the 30th day after each due date, and a payment date. The customer does not respond. The company files in Collin County district court on a sworn account and for breach of contract, attaching the affidavit, the agreement and the invoices, and pleads for attorney's fees under Chapter 38. The customer's answer does not include a sworn denial of the account. The company moves for summary judgment on the account.

Deadlines and the clock

A claim on an unpaid invoice must be filed within four years of the breach under Civil Practice and Remedies Code sections 16.004 and 16.051. Each unpaid invoice has its own breach date. The general rule, the UCC variant for goods, and how a contract can shorten the period are explained in how long you have to sue for breach of contract in Texas.

Will you be able to collect?

A judgment is not money. Before filing, consider what you know about the customer: whether it is still operating, whether it owns property or receivables, whether there is a personal guaranty from the owner, and whether other creditors are already in line. A personal guaranty signed on a credit application is often the single most valuable document in an unpaid-invoice file. The tools for turning a judgment into payment are covered in how to collect a judgment against a business in Texas.

What it costs the business beyond the invoice

A large receivable that stays open ties up working capital, distorts forecasts and consumes management attention. The decision to pursue it should weigh the amount, the strength of the paper, the customer's ability to pay, and the value of the relationship against the cost of pursuing it. For a claim with a signed agreement, clean invoices and a solvent customer, the law in Texas favors the unpaid vendor. For a disputed account with thin paper, the first conversation with a litigator should be about the evidence, not the lawsuit.

Tina Wysk represents Dallas businesses in payment and contract disputes, from the demand letter through judgment and collection.