Selecting between a Debt Collection Lawyer versus a Collection Agency is often a confusing decision. If you talk to them or visit their website, both entities try to convince you into using their own respective services.
There are many scenarios where selection is rather straightforward, in other cases it is a matter of personal preference and complexity of the case. Interestingly, many clients use both entities, starting with the Collection Agency first and Collection Lawyer later.
Lets briefly understand how both these entities work:
Most Collection Agencies offer 3 types of services. Collection Letters, Collection Calls and Legal Collections.
Collection Letters: An agency will send 5 collection letters on “their letterhead” asking the debtors to pay. The verbiage on each letter becomes more and more intensive with every passing letter. These letters firmly explain debtors of the consequences of ignoring their payment requests in a diplomatic manner.
These set of 5 letters cost between $10-$20 per account. Payment for Collection Letters is done upfront, regardless the debtor pays or not. If the debtor pays the outstanding debt, you get all that money and collection agency does not charge anything extra.
Collection Calls: A debt collector calls the debtor personally and asks him to pay, may be in installments. The debt collector may even settle the debt for a slightly lower amount with your (creditor) permission. For the Collection Calls service the Agency charges a contingency fees, means they will only get paid if some amount is collected. If they do not recover anything, nothing is charged. Typically agencies keep 25% to 50% as their commission.
Legal Collections: A lawsuit is filed on the debtor and the contingency fees is disclosed in advance. Collection Agencies rarely have their in-house lawyers. They transfer your case to one of the local Collection Attorney firm with whom they have a tie-up.
Unlike the “one size fits all” approach which is followed by the Collection Agencies, Collection Lawyers take a very different approach. Once they study your case, they will give you a preliminary estimate. Their fees will vary based on how difficult it is to collect the debt. Collection lawyers are usually more expensive than Collection Agencies.
- A debt which is harder and more complex to collect will require a higher upfront fee and a lower contingency fee.
- Depending on the amount of outstanding debt, they will charge a lower commission on large amount debts (around 10% on a $50,000 debt) , and a higher commission on smaller debts (around 50% for debts around $1000). There will be additional costs like Court Costs, Attorney Suit Fee, Per Hour Fees etc. which varies in each case.
- For the older debts (over 1 year old) , they charge a higher fees as they are harder to collect.
People often engage a Collection Agency first and if the debt is still uncollected, they will approach a Collection Lawyer. Some Lawyers offer Written Demands service too like the Collection Agencies before they file a legal suit for collecting money.
Back to the priceless question, how to select?
1. Is the amount of debt more than $10,000 or Less than $10,000?
Hiring a Collection Attorney for outstanding amounts less that $1000 makes very little sense. For smaller debts go for a Collection Agency and select their Collection Letters and Collection Calls service. If the amount is still outstanding, ask the Agency to give you an estimate for doing Legal Collections. You can further compare it with Collection Attorneys in your area.
For amounts in between $1,000-$10,000 you can go either way. A lot depends on the circumstances of the case and your personal choice. My personal preference is to go with a Collection Agency for all debts under $10,000.
For amounts more than $10,000 it is better to go to a Collection Lawyer, provided you are comfortable to pursue a lawsuit against the debtor.
2. Do you want to take your client to the court ?
As mentioned earlier, Collection Agencies offer services which are one size fits all kind of an approach, therefore their costs are lower than Attorneys who take each case individually.
Majority of debtors take Collection Letters MODERATELY/SERIOUSLY, Collection calls VERY SERIOUSLY and Legal notices from an attorney EXTREMELY/MOST SERIOUSLY. Many a times a communication sent from a Attorney may be all that’s necessary to collect the debt without even proceeding with legal action.
For hard to collect accounts with higher balances, you should consider taking legal action directly. But, if you do not want to take the matter to the courts, then its better to stick with a Collection Agency. Many creditors avoid Collection Attorneys because of the the negative image that are associated with using legal action.
3. Do you think your debt is very hard to collect ?
For hard to collects debt, go with an Attorney. If you are not sure then stick with a Collection Agency.
4. No Recovery, No Charge
Both Attorney and Collection Agency offer a “No Recovery, No Charge” service. If they are unsuccessful in collections, you lose nothing. If you do not want to spend any money, then this is the way to go. Give preference to a Collection Agency.
5. Does the Agency/Lawyer have a industry specific specialty:
Some Collection Agencies and Collection Lawyers specialize in a particular industry. Ex Healthcare, Car Dealers, Tenants or Student loans. These Collection Agencies and Lawyers should be given a serious consideration.
6. Forcing the debtor to pay:
If a debtor has 100K sitting in his bank account, and yet he is not paying up a debt of 10K. Only a court order can force him to clear your bill. This is where a Collection Attorney has a clear advantage over a Collection Agency. Attorneys may further get court orders to garnish the debtor’s wages. Collection agency cannot force a debtor to pay (With Collection Letters and Calls) unless they too go for the Legal option. Filing a lawsuit is the most powerful step to recover money from debtors.
Most lawyers are affiliated with Commercial Law League of America (CLLA), International Association of Commercial Collectors (IACC) or at narca.org.
7. Still want to maintain relationship with your patient / debtor ?
Diplomatic collection letters offered by collection agencies are a great way to not break relationship with your debtors. A letter/call/notice from a lawyer is almost always taken negatively, but very seriously.
8. Who collects faster?
The model of a Collection Agency is designed to act fast and in bulk. Collection Lawyer will likely act slower than a Collection Agency.
Since Collection Agencies have a one size fits all approach they are cheaper. This is also the reason why Agencies are able to work on such a large number of cases at a time.
Collection Attorneys have a nearly 100% customized approach for your case, hence they are more expensive. Debtors take legal actions much more seriously. Always check their BBB ratings if available (or on bbb.org).