Collection Agency or Law Firm, What to Use?

There comes a time during the collection process when you have to face the facts; you are not going to collect it. There are always a few accounts that if they are going to pay, it’s going to take a higher power, or at least some kind of pressure from a third party. Now the question is: do you give it to a collection agency or an attorney?

The seductive appeal of collection agencies is that they do not cost anything, unless they collect something. Their compensation comes out of the amount they collect. Generally, collection agencies take about 20% and give the remainder to the client. If the agency is unable to collect the debt, they sue and the only cost to the client may be up front court costs and filing fees. Of course if the suit is successful, their percentage may go as high as 30%.

Collection agencies appeal to those who believe they have done everything possible and the likelihood an agency will do any better is nil. Likewise, some agencies prey on companies with weak collection staffs, encouraging them not to wait, get the claims in while there is still hope. They cheery pick claims, pursuing the ones with the best chance of paying. It surprises me how often accounts are turned over prematurely and only after a minimal effort.

I have already mentioned the building material supplier who turned over an $80,000 claim to an agency. This after the supplier established their bond rights, but did not know what to do next. The agency sent a forty two cent letter to the bonding company and was soon paid the entire $80,000. Thus, it cost the building material supplier $16,000 because the collection department did not know how to write their own letter.

The justification for using a collection agency should be when all in house steps have been exhausted; the debtor appears to have no known assets and whose whereabouts are unknown. Then it’s up to the agency to employ their crack skip tracing techniques, dig up something valuable and coerce payment. This way they deserve what they get.

Many companies are reluctant to use attorneys to file suit in pursuit of money owed. This is rooted in a general distrust of attorneys and in the belief that it is throwing good money after bad. While it is true that win or lose, the attorneys must be paid, in many cases, if the credit application stipulates attorney fees, the collection costs are added to the judgment. In other words, many times, filing suit will result in payment of not only the original claim, but interest and attorney fees as well. It seems that if the debtor is still in business and appears to have assets, but is simply stubborn about letting them go, the logical step would be to sue.

The key to using attorneys to collect is, using a firm that knows what they are doing. Do not retain the boss’s divorce attorney, or the sales manager’s college roommate who specializes is copy right law. Use a law firm who is committed to driving up the debtor’s costs for defending against your claim so that he’ll come to the table and negotiate quickly. Just as importantly, retain a lawyer that you can talk to. I’ve seen too many occasions where the representing attorney’s ego or arrogance intimidates the client.

In the collection process, there is a place for both collection agencies and lawyers. It is a matter of circumstance. This is where Strategic Credit Management Solutions can help. We have had lots of experience with both collections agencies and law firms. We can help you choose the right ones for your circumstances and we can help you work the accounts, so that you may not need use them unless it is an emergency.

See our website at http://powerscredit.com/. Your comments are welcome.