Taking a customer to court is a major business decision. It is the final lever in the debt recovery process, used only when communication has failed and internal efforts have stalled. While a lawsuit can be powerful, it is not a guaranteed path to payment. This guide outlines the practical steps, risks, and reality of the legal process.
The “Should You Sue?” Checklist
Before spending a dime on legal fees, verify these six pillars:
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Balance Threshold: Is the debt large enough to justify filing fees and attorney time?
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Irrefutable Proof: Do you have a signed contract or proof of delivery?
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Correct Legal Entity: Are you suing the actual business name (e.g., “XYZ LLC”) or just a person?
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Active Status: Is the debtor still operating, or have they quietly closed?
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Collectible Assets: Do they have bank accounts, property, or wages to seize later?
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Physical Location: Do you have a verified address to serve them with legal papers?
The 4-Step Legal Flow
Forget complex jargon. Most commercial lawsuits follow this direct trajectory:
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Demand Letter: A formal request for payment sent by your agency or attorney.
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Final Notice: A “Notice of Intent to Sue,” providing a final 10–15 day window to pay.
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File & Serve: A complaint is filed with the court and physically delivered to the debtor.
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Judgment & Enforcement: Winning the case and using the court’s power to seize funds.
The Critical Documentation Checklist
A judge only cares about what you can prove. You must have these ready:
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Primary Agreement: Signed contract, Credit Application, or Purchase Order.
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Itemized Invoices: Clearly showing dates, amounts, and due dates.
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Proof of Performance: Signed delivery slips, bill of lading, or project sign-offs.
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Communication Log: Emails or letters showing you tried to resolve this amicably.
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Payment History: Records of any partial payments or bounced checks.
The Collection Agency Advantage (Avoiding the Counter-Suit)
Why hire an agency before an attorney? Direct litigation often triggers a “defense mechanism” in debtors. To avoid paying, a debtor may file a retaliatory counter-suit—sometimes on a false pretext like “faulty workmanship” or “harassment”—just to force you to drop your claim.
A professional collection agency acts as a buffer. We use psychological leverage and credit reporting to settle the debt without the hostility of a courtroom, significantly reducing your risk of a frivolous counter-claim. They can also advise you whether or not a suit is recommended or not. Getting judgement is one thing, enforcing it is another story.
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Statute of Limitations (SOL)
Your right to sue is not indefinite. Every state has a “deadline” for filing a lawsuit. For example, in California, the SOL for a written contract is generally 4 years. However, this varies wildly by state and contract type. If you miss this window, the debt becomes “time-barred” and legally uncollectible in court.
The Reality of Costs vs. Recovery
| Expense | Impact |
| Filing/Service Fees | Immediate out-of-pocket costs ($100–$500+). |
| Attorney Fees | Hourly rates or high contingency splits. |
| The Big Truth | Winning a judgment ≠ Getting paid. A judgment is just a piece of paper; you still have to go out and “catch” the money. |
When NOT to Sue
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Bankruptcy: If the debtor has filed for protection, all legal action must stop immediately.
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No Written Proof: “He said, she said” cases are expensive and difficult to win.
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Wrong Party: You cannot sue an individual for a debt owed by their corporation (unless there is a personal guarantee).
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Small Balances: If the court and service fees exceed 30% of the debt, it is rarely worth it.
Judgment Enforcement: How You Actually Get Paid
If the debtor still refuses to pay after you win, you must use “Execution” tactics:
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Bank Levy: Freezing and seizing funds directly from the debtor’s bank account.
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Wage Garnishment: Taking a percentage of the debtor’s paycheck (if an individual).
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Property Liens: Placing a legal claim against their real estate or equipment.
Frequently Asked Questions
Can I sue an LLC owner personally?
Only if they signed a “Personal Guarantee.” Otherwise, the LLC protects their personal assets from business debts.
Small Claims vs. Civil Court?
Small Claims is faster and cheaper (no lawyers usually), but it has “caps” (often $5k–$10k). Civil court handles larger amounts but requires formal legal representation.
What if they counter-sue?
If a debtor counter-sues, your simple collection case becomes an expensive legal battle. This is why professional mediation through an agency is often the safer first step.
Want us to review your documents first?
Before you spend money on a lawyer, let our experts analyze your case for free. We’ll tell you if your documentation is “court-ready” or if a settlement is your better path.