What an A/R department does before a file moves to outside counsel has a real effect on what counsel can do once it arrives. Some of our matters come in with clean documentation, intact communications, signed guaranties, and clear payment history, and those move quickly and produce results. Others come in with documentation gaps, unauthorized concessions, oral modifications nobody wrote down, and similar problems that turn what should have been a straightforward matter into prolonged litigation.
The difference is rarely the debtor. It’s what the creditor did, and didn’t do, during the months the debt was managed internally.
This page is our working checklist. It’s the practical guidance we give clients who ask, “What should we be doing differently?” It’s aimed at A/R departments and small-business owners who are likely to send matters to legal collection down the road and want to set those matters up to succeed.
At the Front End, Before You Extend Credit
The highest-leverage moment in commercial collection is when credit is first extended. A few minutes of discipline at the front end saves enormous cost later.
Get a signed credit application. Every commercial customer should fill out a credit application that includes the legal name of the entity, the entity’s form (LLC, corporation, partnership, sole proprietorship), the principal owners’ names and contact information, banking references, trade references, and the customer’s agreement to your standard credit terms.
Get a personal guaranty. The credit application should include a personal guaranty section signed by the principal owner. The guaranty should be in the principal’s individual capacity (not as a representative of the entity), and it should include consent-to-modification waiver language, impairment-of-collateral waiver language, and consent to recovery of attorney’s fees.
Confirm legal entity name and form. Verify the customer’s actual legal name through Texas Secretary of State records (for entities) or the principal’s identification (for sole proprietorships). Many applications use trade names or DBAs, but the legal name is what matters for suit.
Document the credit decision. Keep records of why credit was extended: the references checked, the credit history reviewed, the limits set. You’ll rarely need this, but once in a while it’s critical.
Establish written terms. Net 30, net 60, finance charges on overdue amounts, return policies, dispute procedures. Get them in writing, signed by the customer, and reference them on every invoice.
During the Relationship, Document Everything
Most A/R personnel are good at processing payments. Most are inconsistent at documenting the rest of the relationship. Closing that gap is the single biggest improvement most A/R departments can make.
Document every communication. For every conversation about an account, every email exchange, every voicemail, capture the date, the time, who took part, and what was said. If the conversation involved a payment promise, an extension, a dispute, or a complaint, make sure that documentation can be found again later.
Preserve email chains. Don’t delete email about the account, and don’t delete it after the account closes. Email is often the most useful evidence of acknowledgments, promises, and disputes.
Preserve text messages. A/R staff increasingly use text and instant messaging with customers. Those messages are evidence and should be preserved. If your staff text customers, set up a way to capture and retain those messages.
Keep proof of delivery and acceptance. Signed delivery tickets, signed bills of lading, signed acceptance forms: preserve them. For services, keep records of when the work was rendered and accepted.
Confirm balance acknowledgments in writing. When a customer acknowledges owing a specific balance, whether on a call, in passing in an email, or otherwise, follow up in writing. “As we discussed today, the current balance on the account is $X. Please confirm.” The customer’s response, or non-response after a follow-up, becomes useful evidence.
Don’t accept partial payments without documentation. A partial payment with no written terms can later be recast as a settlement of the disputed balance. If you accept one, get a writing that acknowledges the remaining balance and preserves your right to pursue it.
Get payment plans in writing. A payment plan should be in writing, signed by the customer, and explicit that the underlying balance is fully owed and that the plan doesn’t reduce or extinguish that balance if performance fails.
When the Account Starts to Slide
Most accounts that end up in legal collection went through a recognizable decline. The earlier you catch the pattern and act, the better the eventual recovery posture.
Note when payments start to slip. A customer paying in 30 days starts paying in 45, then 60, then later still. Document the pattern as it develops.
Confirm the balance regularly. Send statements monthly. When balances aren’t getting paid, send them every two weeks. The statement is a written confirmation of the balance, and if the customer doesn’t dispute it, that silence becomes evidence of acknowledgment.
Watch for behavior changes. A customer who stops returning calls, bounces a check, or asks for unusual terms or extensions is showing signs of distress.
Watch for entity changes. When a customer dissolves an LLC and reopens under a new name, changes ship-to addresses, or swaps out its principal contact, those can be signs the customer is restructuring around its debts.
Document disputes carefully. If the customer raises a dispute, document exactly what it is, get their position in writing, and respond in writing. A vague dispute the customer never specifies usually doesn’t survive at trial, but one the customer raises consistently in writing across several communications can become a real defense.
When You’re Considering Legal Action
By the time A/R is thinking about legal action, a few steps maximize the matter’s prospects.
Don’t make threats you won’t carry out. “We’re going to sue if you don’t pay by Friday,” repeated for months without filing, teaches the customer the threat is empty. When the matter finally goes to legal collection, the customer’s reaction is shaped by how credible (or not) the threat turned out to be. Either commit to legal action or don’t threaten it.
Don’t agree to settlements without counsel input. A/R personnel sometimes negotiate settlements that, looking back, gave away meaningful rights. If a matter is at the point of legal action, get counsel input before finalizing any settlement.
Stop extending credit. Continuing to ship goods or provide services to a customer that has stopped paying just compounds the loss. It can also complicate the legal claim, since additional charges run up during the dispute period may be characterized as voluntary.
Preserve the file. Once legal action is on the table, preserve all relevant documents. Don’t destroy email chains, don’t delete texts, don’t toss original delivery records. The duty to preserve evidence kicks in once litigation is reasonably anticipated.
Identify what you have on the principals. If you hold personal guaranties, locate them. If you have asset information on the principals (home address, business interests, other holdings), pull it together. The principals’ personal exposure is often the highest-leverage part of the matter.
Calculate the running balance. Have a clean, supportable calculation of the principal balance, finance charges or interest as applicable, and any costs to be added. The cleaner this is at intake, the cleaner the litigation.
The Common Mistakes That Cost Recovery
The patterns we see over and over:
Verbal modifications nobody documented. “We agreed last summer that they’d pay over six months.” With nothing in writing, the customer can deny the agreement existed, dispute the terms, or claim it modified the underlying balance entirely.
Acceptance of partial payment as “satisfaction.” A customer sends a check marked “paid in full” for less than the balance owed, and A/R deposits it. Texas accord-and-satisfaction rules can turn that deposit into a release of the remaining balance under specific circumstances. The check shouldn’t be deposited without legal review.
Unauthorized concessions by sales staff. Sales staff trying to save the relationship sometimes make concessions that bind the company: “we’ll waive the late fees,” “we’ll accept the lower amount,” “we’ll extend the deadline.” Without authority, those concessions may not bind the company, but proving non-authorization after the fact is harder than preventing the concession in the first place.
Continued shipments to non-paying customers. Compounds the loss and can complicate the legal posture.
Aging the file past the limitations period. Texas’s four-year limitations period on most contract claims is generous, but it runs. Files that age past four years without action are generally lost.
Letting documentation degrade. Original delivery tickets, signed credit applications, executed guaranties: when these go missing, the legal claim gets harder. Preservation is cheap; reconstruction is expensive.
Letting principal contacts walk. When the principal of a customer business is visibly in distress (tax liens, public lawsuits, divorce filings, business closures), creditors who moved promptly often recovered, and creditors who waited often found nothing left.
The Practical Checklist
For A/R departments who want a single-page reference:
At account opening:
- Signed credit application with personal guaranty
- Verified legal entity name and form
- Documented credit decision
- Written, signed terms
Throughout the relationship:
- Documentation of every substantive communication
- Preserved email and text records
- Proof of delivery and acceptance for every transaction
- Written confirmations of balance acknowledgments
- Written documentation of any modifications or extensions
When the account slides:
- Regular statements (monthly minimum, biweekly when overdue)
- Documented dispute responses
- Pattern documentation (slip from 30 to 45 to 60+ days)
- Behavioral observation notes
Before legal action:
- File preservation
- Counsel input on any settlement
- Stop further extension of credit
- Locate guaranty documentation
- Assemble principal asset information
- Clean balance calculation
Set Up Your Matters for Success
The work that goes into preserving a debt for legal collection is mostly invisible until it matters. When it does, it determines whether the matter is fast and clean or slow and expensive, and sometimes whether it’s collectible at all.
If your A/R department wants to evaluate its preservation practices, contact the firm. We’re glad to have that conversation with A/R managers, controllers, or owners who want to set their collection function up to produce results.
Contact us to get started or call 214-368-4686.
Related Pages
- For A/R Departments
- Our Debt Collection System
- Year-End Bad Debt Write-Off Decision
- Personal Guaranty Enforcement
- Collection Agency vs. Collections Law Firm
- Texas Collections Law FAQs
Preservation FAQs
Is a credit application from years ago still effective?
In most cases yes, especially if it includes a personal guaranty. We review the specific document at intake. Older applications sometimes lack modern waiver language, which makes a few defenses easier for the guarantor to raise, but enforcement is still typically available.
What if the customer's signature looks different now from when they signed the credit application?
Signature drift over time is normal, and authenticity challenges built on it are hard to sustain. The original document, contemporaneous business records of the signing, and, if needed, handwriting expert testimony typically defeat the challenge.
Can text messages really be used as evidence?
Yes. Text messages are evidence under the same rules as email, letters, or any other written communication. Authenticity, hearsay, and best-evidence rules apply, but texts routinely come into evidence in collection matters.
What if our internal A/R doesn't have time to document every call?
Document the calls that matter: calls about overdue balances, disputes, payment promises, and any call where the customer makes a substantive admission. Routine status calls don't need detailed documentation. The higher the stakes of the conversation, the more the documentation matters.
What if our company doesn't get personal guaranties on credit applications?
You can change that going forward. For existing customers without guaranties, you can request one as a condition of continued credit (a credit-limit increase, an extended-terms request, and the like). For customers who won't agree to a guaranty, that refusal is itself information about the relationship's risk profile.
What if we accidentally accepted a "paid in full" check that was less than the balance?
Contact counsel right away. Texas accord-and-satisfaction rules turn on specific facts (whether the check was clearly marked, whether the dispute was genuine, whether you cashed it after receiving notice of the marking, and other variables). The matter may still be salvageable.
How long should we keep records on a closed account?
We recommend keeping records at least through the limitations period, four years from the last transaction or last payment, whichever is later, and longer where practical. For accounts that ended without resolution, longer retention is better.
What if the customer has dissolved its business?
Dissolution doesn't necessarily eliminate claims. Texas law preserves claims against dissolved entities for a period of time and provides procedures for pursuing distributed assets. Personal guarantors aren't affected by entity dissolution. We evaluate dissolution-affected matters at intake.
Should we send a formal demand letter ourselves before going to a lawyer?
We typically send the demand letter as part of the engagement. A demand from a law firm carries more weight than one from the creditor's own A/R department, and it satisfies the statutory notice requirements for recovering attorney's fees on contract claims.
What if our A/R staff want to learn more about preservation best practices?
We provide occasional briefings to A/R staff at client locations, and the conversation can be tailored to the client's industry and customer profile.