Pay Up: Collection Agencies vs. Collection Law Firms

Your accounting team has written letters, made phone calls, and even had a personal meeting (or two) with a customer who continues to give them the run around about paying their debt. You feel as if you've been pushed into a corner and are now considering legal action; however, you're unsure whether you should call a debt-collection agency or a lawyer who specializes in debt collection.

While deciding to contact a collection agency or collection law firm is a personal choice, there are differences in the services that each can provide. Here are some important factors to consider when deciding how to collect a debt.

The Collection Agency

When it comes to collecting a debt, the most obvious choice is to call a collection agency. But, what does that mean for you?

First, there are several differences among collection agencies. There are local and national firms, as well as those that specialize in handling specific forms of debts, such as healthcare versus consumer or commercial credit. So, selecting the right service for your company is essential.

Start out by making sure they fit your business and have the skills and knowledge to successfully collect your debt. Next, consider the fact that you will need to pay for their services, which typically run between 25 percent and 50 percent of the amount they collect. Exactly how much it will cost will depend upon the amount of business your firm provides, the age of your accounts, and the overall amount collected.

While no agency can guarantee that they will be able to collect your debt - especially since many merely take the actions you previously took - you should still find out their success rate. This means asking what percentage of the accounts placed with them have been collected. Finally, check with your Better Business Bureau and state Attorney General to ensure that the firm hasn't violated any laws or had any complaints against them.

The Collection Law Firm

Some business professionals believe that a collection law firm is a better option for retrieving company debts. Often, companies will begin with a collection agency and, if they can't get the job done, subsequently go to a law firm. For this reason, some experts recommend utilizing a law firm from the very beginning. After all, winding up in court after working unsuccessfully with a collection agency will only cost you more in the long run.

Generally, lawyers will charge an hourly rate or a percentage of the amount recovered (usually at least one-third), or they may ask for both. And, if you're willing to take your customer to court over past-due accounts, then going straight to the law firm might be the better way to go. Additionally, law firms can offer services that collection agencies cannot, such as filing lawsuits and obtaining judgments. Plus, law firms are subject to strict codes of ethics and licensure.

If you're contemplating how to collect an outstanding payment, be sure to look carefully at your options. And, consider finding an agency that belongs to the Commercial Collection Agency Association, which is part of the Commercial Law League of America.

Talk About It

Have you ever taken legal action to collect a past-due payment? If so, share your stories with other OfficeArrow members. And, be sure to utilize this helpful data-collection checklist.