Texas commercial debt collection laws: statute of limitations, interest and attorney fees on unpaid business invoices

Texas commercial debt collection is governed by contract law, the Uniform Commercial Code and the Texas Finance Code, not by the Texas Debt Collection Act, which is limited to consumer debt. A Texas business collecting its own unpaid B2B invoices generally has four years to sue, may charge 6 percent a year from the 30th day after the amount was due even without a contract rate, and can recover attorney fees from a customer of almost any entity type if it presents the claim in writing and waits 30 days.

That paragraph is the whole article in short form. The rest is the detail, because each of those four points has a trap in it that costs Texas creditors money every year.

Does the Texas Debt Collection Act apply to unpaid business invoices?

Almost certainly not, but the reason is worth understanding because Texas gets here differently from federal law.

The Texas Debt Collection Act lives at Chapter 392 of the Finance Code. Section 392.001 defines "consumer debt" as an obligation "primarily for personal, family, or household purposes." An invoice for materials, equipment or professional services sold to a company is not that, so Chapter 392 does not reach it.

Here is the part most guides miss. The TDCA's definition of "debt collector" is considerably broader than the federal one. Where the FDCPA targets people collecting debts owed to another, section 392.001 defines a debt collector as a person who "directly or indirectly engages in debt collection," full stop. Texas separately defines a "third-party debt collector" by reference to the federal standard for the provisions that need that narrower category.

The practical consequence: in Texas, a business collecting its own debt is still a debt collector under the TDCA. It escapes the statute only because the debt is commercial, not because it is the original creditor. Flip the customer from a company to a consumer and the same business is squarely inside Chapter 392 even though it never hired an agency. Federal law would have let it out; Texas law does not.

So the test in Texas is a single question. Was the transaction primarily for personal, family or household purposes? If no, Chapter 392 is not your concern and you are working under contract law and the UCC. If yes, read Chapter 392 carefully before you send another reminder, whoever is doing the collecting.

How long do you have to collect an unpaid invoice in Texas?

Four years in almost every case, running from the day after payment was due rather than the day you issued the invoice.

The general limitations period for a breach of contract claim comes from Chapter 16 of the Texas Civil Practice and Remedies Code and is four years. Separately, UCC section 2-725, adopted in Texas as part of the Business and Commerce Code, imposes a four year limit on a claim for breach of a contract for the sale of goods. Texas is one of the states where those two happen to agree, which makes life simpler than in, say, Illinois, where the general contract period is ten years and sellers of goods still get only four.

Two things move the date. A partial payment or a signed written acknowledgment of the debt generally restarts the clock, so the customer who sends $500 against a $9,000 balance has just handed you four fresh years. And where a contract sets out instalments, each missed instalment can start its own period. Neither of these is something to rely on without checking the file, but both are worth checking before you write an old account off as dead.

Once four years pass the claim is time barred rather than erased. You may still ask for payment and the customer may still choose to pay, but a court will dismiss the suit if the defense is raised, and threatening litigation you can no longer file is its own problem. The accrual rules and how they differ across states are covered in more depth in our guide to the statute of limitations on unpaid invoices.

Can you charge interest on an overdue invoice in Texas?

Yes, and Texas is unusually generous to creditors who forgot to put a rate in the contract.

Texas Finance Code section 302.002 provides that where the creditor and the obligor have not agreed on any interest, the creditor may charge and receive legal interest at 6 percent a year on the principal amount of the credit extended, beginning on the 30th day after the date the amount is due. You do not need a clause. You do not need the customer's agreement. The statute supplies it.

Six percent is a floor, not a target. If your terms specify a rate, that rate governs, subject to the Texas usury rules, and most commercial terms set 1.5 percent a month. The gap between 18 percent contractual and 6 percent statutory on a $50,000 invoice carried for a year is $6,000, which is a reasonable price to put on the ten minutes it takes to fix your standard terms.

What surprises people is how rarely the statutory 6 percent gets claimed at all. Businesses assume that no clause means no interest, write the invoice at face value and never mention it. On an aged Texas ledger this is free money left on the table.

Can you recover attorney fees from a Texas business customer?

Yes, and the answer changed for the better in 2021 in a way that matters enormously if your customer is an LLC.

Section 38.001 of the Civil Practice and Remedies Code has long allowed a prevailing claimant to recover reasonable attorney fees on a claim for an oral or written contract, for services rendered, or for materials furnished. The problem was the wording. Texas courts read the old statute as permitting fees only against an individual or a corporation, which meant a defendant organised as an LLC or a partnership, which by then was most of them, simply could not be made to pay your legal costs.

House Bill 1578 fixed it. Effective for actions commenced on or after 1 September 2021, section 38.001(b) allows recovery against an "individual or organization," with organization taking the definition in section 1.002(62) of the Business Organizations Code. That sweeps in limited liability companies, limited and general partnerships, business trusts, joint ventures, cooperatives, associations, banks, insurance companies and more. The carve outs are narrow: quasi-governmental entities authorised to perform a function by state law, religious organizations, charitable organizations and charitable trusts.

If you were advised before 2021 that suing an LLC customer was not worth it because you would eat your own legal fees, that advice is stale. It is worth having someone check how Texas courts have applied the amended section to a fact pattern like yours before you commit to filing, since the change only reaches actions commenced on or after the effective date.

The 30 day presentment rule that makes fees recoverable

Section 38.002 sets three conditions for recovering fees: the claimant must be represented by an attorney, the claim must be presented to the opposing party or a duly authorized agent, and payment must not have been tendered within 30 days after the claim was presented.

That middle condition is why a dated written demand letter is not merely a pressure tactic in Texas. It is the step that starts the 30 day clock and preserves your fee claim. A creditor who calls repeatedly, never writes, and then files suit may find the fee award contested on presentment grounds. Send the letter, keep the proof of delivery, and diary the 30 days. The structure of a demand that does this job properly is set out on our demand letter for payment page.

Do you need a license or bond to collect in Texas?

Not to collect your own accounts. Texas requires third-party debt collectors and credit bureaus to file a $10,000 surety bond with the Secretary of State before engaging in debt collection, under Chapter 392. The bond is aimed at businesses collecting debts owed to someone else.

A Texas company chasing its own customer over its own invoice, under its own trading name, is not acting as a third-party debt collector and does not file a bond. Where creditors get into trouble is presentation: collecting under a name that suggests an outside agency is involved, or standing up a separate entity to collect an affiliate's receivables. Either can move you into the third-party category, and with it the bond requirement and, if the debt is consumer, the federal framework as well. The commercial and legal differences between the two postures are covered in first party versus third party debt collection.

What Texas creditors can and cannot do

For a commercial account with reasonable contract terms, all of the following are available: written reminders and formal demands, contractual or statutory interest, credit hold and suspension of supply, reporting the trade line to a commercial credit bureau, placement with a commercial collection agency on contingency, an attorney demand, suit, and post judgment enforcement under Texas procedure.

The limits are the ones you would expect from general law rather than from a collections statute. Do not misstate the balance or what will happen if it goes unpaid. Do not threaten criminal consequences or a suit you will not file. Do not hold yourself out as a law firm, a government body or an outside agency when you are not. Do not keep collecting after a bankruptcy filing, because the automatic stay is federal and takes effect immediately. And if the customer turns out to be a consumer, Chapter 392 applies to you directly as the original creditor, which is the Texas trap worth repeating.

A practical Texas sequence

Put the interest rate and a collection costs and attorney fees clause in your standard terms, because both are worth more than any tactic applied afterwards. Work the account on a written schedule: reminder before the due date, follow up at day 7, firmer notice at day 15. At day 30 send the formal written demand, dated, with proof of delivery, and start the section 38.002 clock. Calculate the four year limitations date at the same time so the decision to escalate is never made blind. Somewhere between day 60 and day 90, decide deliberately whether the account goes to a contingency agency at 25 to 50 percent or to an attorney for suit, and remember that recovery rates fall from roughly 70 percent under 90 days to often under 15 percent past 180.

The legal analysis on this page is the easy half. The hard half is that the sequence has to actually run, on every account, every month, when the people responsible for it are already busy doing the work that generated the invoice. That is why Texas ledgers age: not because anybody decided to stop collecting, but because nobody had time to start. Our wider guide to commercial debt collection laws covers how the same analysis works in other states, our companion guide to California commercial debt collection laws works through a state whose rules changed twice in eighteen months, and B2B debt collection covers the escalation economics in more detail.

This is general information about Texas law and not legal advice. Statutes and bond amounts change, and the application of any of this to a particular account depends on your contract and the facts. Confirm current requirements and take advice before acting on a specific claim.