Collecting Debt


One of the main struggles that small businesses go through is learning how to collect debt or accounts receivables from customers who will not pay.  After five invoices have been sent, phone calls have been made, and emails have been written, what can a small business do?  There are many methods that a small business can utilize to collect debt, depending on the amount of time and cost that it will incur.  Businesses must review their options and decide which method is most cost effective and most successful for them to use.  The five methods that will be covered are using the county attorney and hot check division, debt collection agencies, small claims court, the county court, and skip tracing.

Local County Attorney and Hot Check Division

Receiving a hot check, meaning a check with non-sufficient funds, can be devastating; but all is not lost when this occurs. All, if not most, counties in Texas have a hot check division in the local County Attorney department. This department’s responsibility is to return the money lawfully owed to you that had been previously denied.  The County Attorney’s hot check division is a free service to help you get your well-deserved money back from those who would take it with a hot check (Bell County attorney and hot check division). (14)

Your local County Attorney hot check division can do a lot for you and the recovery process only consists of a few steps.

  • Immediately make contact with the hot check writer to make restitution.  All you have to do is bring the check to the hot check division; they do all the work at no expense or effort on your part, including demand letters. There is no cost to you.


  • If the hot check writer refuses to cooperate, and you have provided us with a driver’s license number and state of issuance of the hot check writer, a warrant of arrest is issued.


  • In addition to requiring 100% restitution, the law also allows the Hot Check Office to require a $30 per check collection fee on each check, which is also returned to the merchant (other check collection agencies keep that as their fee).

Good Rule of thumb when collecting checks:

  • Establish a consistent policy of accurately identifying the person who issues you a check; write the person’s driver’s license number and state of issuance on the face of the check. If the check bounces you already have the necessary information to file with your local hot check division (Bell County attorney and hot check division). (14)

“There may be some situations when the hot check division cannot prosecute on a check for legal reasons. This is because the County Attorney’s Office is a prosecution agency, not a collection agency. Their emphasis is on restitution, but they still have to follow all rules of criminal procedures (Bell County attorney and hot check division).” (14)  This can be the downside to using this method, because there is not always a way to recover the money owed to you.  However, if this method does not work, there are still more to choose from.  A debt collection agency is service that can be utilized to collect owed monies.

Debt Collection Agencies

Debt collection agencies are another viable alternative to collecting debt. However, when deciding whether to use a debt collection agency you must consider the advantages and disadvantages. A collection agency takes the burden off of you and your company of collecting overdue debt. It also saves you time and money because you or your employees will not be putting their time and effort into collecting debt. A collection agency may have a better chance of collecting the debt because they are specialists in negotiating with debtors. They can also put more time into it than you could.  Debt collectors will also keep you within the law, as long as they abide by it and do not use fraudulent ways to collect debt. Agencies will also follow the Fair Debt Collection Practices Act, but that does not cover debts incurred by running a business. According to the Attorney General of Texas website, “debt collectors must follow the Texas Debt Collection Act. The Act prohibits the use of fraudulent and abusive collection tactics by individuals or corporations to obtain payment on outstanding debts against a debtor.” (9, 10, 12)

Limitations of Collection Agencies:

The Attorney General of Texas website explains, “State law prohibits the use of harassment and abusive collection tactics. It is illegal for any debt collector to: threaten violence or other criminal acts; use profane or obscene language; falsely accuse the consumer of fraud or other crimes; threaten arrest of the consumer, or repossession or other seizure of property without proper court proceedings; use the telephone to harass debtors by calling anonymously or making repeated or continuous calls; make collect telephone calls without disclosing the true name of the caller before the charges are accepted. The use of fraudulent or deceptive practices is also prohibited, including: using a false name or identification; misrepresenting the amount of the debt or its judicial status; sending documents to a debtor that falsely appear to be from a court or other official agency; failing to identify who holds the debt; misrepresenting the nature of the services rendered by the collection agency or the collector; falsely representing that the collector has information or something of value in order to discover information about the consumer.” (10)

Cost Issues:

On the other hand, using collection agencies does cost you money because you will either be paying a flat fee per account, giving the agency a percentage of what is collected usually varying between 30% and 50%, or selling the delinquent account at less than face value. Some debt collection agencies have bad reputations, and interact with debtors in unprofessional, rude, and abrasive manners. Make sure you choose a debt collection agency with a good reputation, and make sure that the agency is professional and courteous when interacting with its debtors. You do not want a collection agency ruining the relationship you had with a customer prior to them owing you money.  So using a debt collection agency has advantages and disadvantages, just like any other method.  Things to consider are customer relationship, costs, legal regulations, and time.  However, often the legal system can help small businesses recover some of their debt owed in courts, such as the small claims court.  (9,10,11)

Small Claims Court

Generally speaking, small claims court is directed towards small monetary disputes, and in some states, evictions and restitution of property. Small monetary dispute limits vary from state to state, and normally range from $3,000 to $10,000, but Texas’ dollar limit is $10,000.  The courts have rules regarding where, when, and how to file in the small claims court. Each state has rules known as “statutes of limitations” which place time limits on one to file suit against another after the events causing suit take place.  According to Fair Debt, “The Texas Civil Practice & Remedies Code provides a 4-year limitations period for types of debt.”  As for where to file suit against another party, rules usually require one to sue in the small claims court district closest to the defendant’s residence. If the defendant is out of state, one will have to sue near the defendant’s residence or place of business in their state, although doing so is usually a costly endeavor and may not necessarily be worthwhile.(3)

In order to file a small claims case successfully, there is a certain process you must go by. The first step is that your claim must be under oath. As the Harris County Justice of the Peace Court website explains “by appearing in person before the Justice of the Peace or the clerk and filing a statement of the claim under oath; or, by filing a sworn Small Claims Petition with the Justice of the Peace or clerk of the court.” There is a total of $34.00 in fees that the Justice of the Peace Court must receive, paid by the plaintiff. The next step is the issuance of citation in order for the court to acquire jurisdiction over the person you are suing, who must be notified of the lawsuit filing. The citation contains information on the date of filing of the petition, case number, party’s names, and the plaintiffs demand. It also includes that if the defendant fails to appear at the trial of the claim of a judgment by default the case will be found in favor of the plaintiff in the amount of the money plaintiff is suing for. (13)

The next step is for the person you are suing to be served with the citation by an officer of the state to serve and may be serviced in any manner authorized for serving. A service fee is also involved in the Justice of the Peace Court and is set by the particular county you are suing in. It is important to know that unless the person you are suing has been properly served no judgment may be rendered against them. If you are suing a business, either sole proprietorship, partnerships, or corporations you must make sure that the person who accepts the serve is authorized to do so. Another important aspect of this process is the “venue” which is the proper Justice of the Peace Precinct in which the Small Claims Court may exercise jurisdiction. As a general rule, the suit must be filed in the venue which the defendant resides. However, there is a process to get the venue transferred to a different precinct. Next is the trial process including: discovery, jury trial if demanded by plaintiff or defendant, continuance if either is unable to appear, then the hearing. At the end of the hearing the Justice of Peace must make the judgment. The Justice of the Peace Court website states, “Under the law, if the judgment is in favor of the plaintiff and against the defendant, the defendant must pay the judgment immediately.” There is a right to appeal by either you or the defendant if the amount is most than $250.00. (13)

In preparation of filing the small claims case, evidence should always be supplied. Letters or in-person testimony from eyewitnesses is the best sort of evidence to prove one’s case. Depending on the facts of the case, photographs and contracts are always a good source of evidence as well. When presenting this to the judge, one should get to the meat of the case by stating the event that lead to the claim as well as the amount of money requested. Only after the main points are stated should one go into more detail.  In addition, a lawyer is not necessary because the cost of one defeats the purpose of using the small claims court. Small Claims court is a good tool, but there are other methods to be used as well.(3)


If small claims court would rather be avoided, one could simply write a letter to the person in question directly stating that if payment is not received within ten days action will be taken to small claims court. Also, mediation is a service many states, including Texas, offer where a neutral third party is brought in to assist both parties to reach an agreement. This form of dispute resolution is primarily for parties hoping to stay on good terms.  Mediation is a private process with no time limit where both parties are encouraged to be as creative as possible to reach a form of agreement away from the courts. Everything about the process is confidential and cannot be used against either party in the court, should mediation fail. It has been stated that as many as 80% of mediation parties reach a comprehensive resolution, and the other 20% involves some sort of substantive resolution. If both parties reach an agreement, the mediator will fashion a written document called “Rule 11 Agreement” which makes said agreement irrevocable and binding.(5)


Not everyone who wins in small claims will get their money. One should ask if collection can and will happen after winning but before suing as the court will not handle collection even if they rule in one’s favor. It should be known if the person in question has a steady job, investments, or other assets of high value. If so, garnishing wages should be a fairly easy venture after a win in court.  If not, said “judgment-proof” people who don’t pay up front could be a very difficult obstacle to overcome to receive payment. If they seem to have no job or assets of high value, then one should ask them if they would be “more solvent” in the future. This is because judgments in most states can last 10 – 20 years and can usually be renewed for longer periods. At this point, one should consider if said people will graduate and get a nice job, inherit something big, or something of the sort to increase their economic climate.  If these limitations prevent the collector from retrieving their debt, there is another way to use the legal system to your advantage.(3)

Utilizing the Legal System

After exhausting methods of collecting debt, it will be necessary to use the court system to obtain debt or monies owed to you.  The court does not actually get the money back for you, but rather they assist you in establishing a method to retrieve what is owed to you.  The main way that you can do this by obtaining a judgment from either the district court or the county court in which your business operates.  After obtaining a judgment, this gives you a writ of garnishment.  In Brazos County, it costs $237.00 to obtain a writ of garnishment from a district court and $233.00 to obtain one from a county court.  A judgment allows you to collect the money that is owed to you through a couple of methods. (8)


The first method that you can use is to use the writ of garnishment to go to the debtor’s bank account and garnish the amount owed to you.  You can find out their bank account by looking at past transactions that you have had with them.  If there is not sufficient funding in their account, you can contact their customers or employers.  If they owe or have to pay the debtor an amount of money at some point, they cannot pay the debtor, but rather they must pay you.  If the debtor closes that bank account, then skip tracing might need to be used to find the debtor.(6)

In addition to paying back the amount owed, there is often interest added to a judgment that the plaintiff must pay.  According to Texas procedural requirements: “All judgments of the courts of this Statute based on a contract that provides for a specific rate of interest earn interest at a rate equal to the lesser of the rate specified in the contract or 18 percent. All other judgments, together with taxable court costs, earn interest, compounded annually, at the rate published by the consumer credit commissioner in the Texas Register. The consumer credit commissioner shall compute on the 15th day of each month the judgment interest rate by taking the auction rate quoted on a discount basis for 52 week treasury bills issued by the United Statutes government as published by the Federal Reserve Board on the most recent date preceding the date of computation. The interest rate so computed shall be the judgment rate, subject to a ten percent floor and a twenty percent ceiling. Judgments earn interest for the period beginning on the day the judgment is rendered and ending on the day the judgment is satisfied. Judgments in wrongful death, personal injury, and property damage cases must include prejudgment interest as calculated by Statute.”(4)

Another use of the judgment is to get a writ of execution on personal property.  This lets you use a court official, such as a sheriff, to confiscate some type of property from the debtor.  This can include everything from equipment to seizing their vehicle.  There are some issues with this method, including asking a court official to actually do the seizing and finding property that has the title in the debtor’s name.  If the property is not in their name, there is a debate on whether it is can be seized or not.   In some counties and states there is the option to get a lien on real property, meaning that you can seize their real estate.  However, this method is the most difficult and is not consistent within the different states’ laws. (6)

Skip Tracing

Another method that can be utilized is through skip tracing, which allows you to locate where the debtor is and collect the money that they owe you.  Skip tracing can be done through a collection agency or personally.  Some business articles have recently supported creating a skip-tracing department within companies, which is separate from the collection department.  However, that applies to bigger companies and mostly credit card companies. Skip tracing can be a valuable way to recover debt owed to you. (7)

There are three different ways to recover the money depending on how much money the collector wants to spend.  There is a method using their credit card agency to track where they have been spending money.  There are also subscription websites to utilize that will provide the same information regarding the debtor.  The second way is to use the phone and call the debtor or call people that they know.  This can be heavily regulated under the Fair Debt Collections Act and rules are enforced depending on the debtor’s status, ex. They filed for bankruptcy.  The third method is to find them using tracking methods and questioning other people in their life.(7)


Each method can allow you the ability to collect the debt owed to you and can be rewarding.  However, it is important to remember that there must be a balance between costs and the amount of debt recovered.  You do not want to bankrupt your business trying collect accounts receivable monies owed to you.  Each decision and method must go under careful consideration and it is important to not immediately jump to any of these methods.  Learn to perform credit checks and background checks early on to prevent these problems from happening.  Also, it is important to know the resources that are out there and to utilize them before spending tons of money on an expensive collection method.  Learning to collect debt is part of the process of owning and operating a small business and utilizing the resources out there will make your business even more successful.



Creditor ” means a party, other than a consumer, to a transaction or alleged transaction involving one or more consumers.

Debt collection” means an action, conduct, or practice in collecting, or in soliciting for collection, consumer debts that are due or alleged to be due a creditor.
Debt collector” means a person who directly or indirectly engages in debt collection and includes a person who sells or offers to sell forms represented to be a collection system, device, or scheme intended to be used to collect consumer debts.

Hot Check A bad check; a check issued with non-sufficient funds.

Judgment a legal decision made by the court allowing the person to utilize a writ of garnishment.

Mediation using a form of alternative resolution methods to decide an outcome, it involves the use of a third party to direct the outcome.

Non-Sufficient Funds A check has been presented for clearance, but the amount written on the check exceeds the available balance in the account.

Restitution Reparation made by giving an equivalent or compensation for loss, damage, or injury caused; indemnification.

Skip tracing using different methods to find and recover people’s whereabouts

Small Claims Court where you can sue someone a small amount of money that is owed to you

Third-party debt collector” means a debt collector, as defined by 15 U.S.C. Section 1692a(6), but does not include an attorney collecting a debt as an attorney on behalf of and in the name of a client unless the attorney has non-attorney employees who:

a.     Are regularly engaged to solicit debts for collection; or

b.     Regularly make contact with debtors for the purpose of collection or adjustment of debts.

Writ of garnishment issued by the courts to garnish earnings and money from the debtor’s bank account.

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1.  Texas Statue Finance Code, Title 5 Ch. 32, Texas State Law 1997, 1997

2.  Fair Debt Collection Practices Act, FDCPA 15 U.S.C 1966, 2006

3.  FAQ Small Claims Court, NOLO 2008, 2008

4.  Fair Debt Collection Statue of Limitations Section 16.004 (a) 1967, 2006

5.  Texas Mediation Frequently Asked Questions Daryl G. Weinman 2004

6. Walish, Joshua, (2006) “What to do with those Aged Accounts Receivable”
Grand Rapids Business Journal Vol 24 Issue 6

7.  Cliff Poole (2006)  “Understanding Tracing in Consumer Collections”
Institute of Credit Management

8.  Court and Filing Fees, Brazos County District Court Office 2010

9. Collection Agency Outsourcing. The Pros & Cons Of Using Collection Agencies. <>

10. Abbott, Greg. (July 2, 2009). Debt Collection. <>

11. Collection Agency Outsourcing. Debt Collection Agencies. <>

12. Federal Trade Commission. (February 2009). Facts for Customers Debt Collection FAQs: A Guide for Consumers.<>

13. Harris County Justice of the Peace Court. Small Claims Cases, Filing Small Claim Cases.


14.  County Attorney Hot Checks Home, Bell County Information Systems 2010



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