Collecting debt is a significant problem for many businesses. Are you better off simply writing off the account? Should you hire a law firm, or use a cheaper collection agency? And, if you believe that a lawyer is the best option, how do you decide which attorney to hire? This article will help you find answers to these questions that fit your firm’s business model.
When to Write Off an Over-aged Account
Each business is best positioned to decide if it is more efficient to write off delinquent accounts or to attempt collection. The primary factors to consider are, 1) cost of collection, 2) likelihood of collection, 3) impact on client relationships, and 4) would the resources necessary to attempt collection be better spent on seeking new customers?
Balancing these factors may require some experimentation to determine the “average performance” of a particular collection method or provider before you can project these outcomes with reasonable confidence. Evaluating the impact of collection attempts on client relationships or deciding if the money is better spent on seeking new customers can involve judgment calls that are hard to quantify.
Methods of Collecting Delinquent Accounts
There are three basic ways that firms can collect over-aged accounts:
- Use an team of employees
- Hire an attorney or firm
- Hire a debt collection agency
Some firms handle collections entirely in-house. However, this choice is usually employed by firms who need to collect such a large number of delinquent accounts that hiring employees skilled in this field is cost-efficient. The second problem is that handling account collection entirely on your own is that any bad feelings created by pursuing these debts will attach to your firm and brand.
Many times, firms will handle initial collection attempts in-house and only hire a third party once it becomes clear that obtaining payment is going to be a problem.
Hiring an attorney usually costs more than a collection agency but has the advantage that a law firm can file suits and handle bankruptcy proceedings. A collection agency can’t do these things themselves. At best, they will contract out these actions to a third-party law firm. At worst, an agency will do no more than send threatening letters and make phone calls.
The attorney is a better option if you believe the client is unlikely to pay or you believe the matter will end up in court. Using an agency and then relying on them to hire a collection lawyer if legal action is necessary only adds another interested party to the mix. This choice can interfere with your firm getting the legal representation that serves your interests.
How to Select A Collection Attorney
Once your business has decided to hire a collection attorney, what should you consider before hiring a particular lawyer or firm?
1. Does the Lawyer Specialize in Collecting Your Type of Delinquent Account
If an attorney is accustomed to collecting accounts for a particular kind of business or within a certain industry, they are more likely to be efficient at collecting such an account. Using a lawyer inexperienced in a particular industry or debt type is a formula for unsatisfactory performance.
2. Attorney Skill-set
Some attorneys are particularly good at collecting from small businesses or individuals. Others know how to handle delinquent accounts from large corporations. Ask a prospective attorney about their experience in the field to determine if their skills are a good fit for your firm’s needs.
3. How Much Does the Attorney Charge?
Cost is an important factor in deciding if and how your firm pursues any collection action. Using an attorney to collect over-aged accounts can involve both a filing fee for legal action as well as a fixed percentage of any recovered assets. Ask any attorney you wish to hire for a clear breakdown of their fees.
4. Is the Attorney Part of a Firm?
A solo practitioner has the advantage of independent action, but usually has fewer resources and a more limited variety of experience to draw upon. A firm will include attorneys that have faced many different kinds of collection situations and will typically have more funds available to handle a large legal action.
An experienced attorney or firm should be able to provide an extensive list of references. What do those references say about them? What kind of reputation does the firm or attorney have in the community? How is the firm or attorney rated on Martindale-Hubbels (an independent resource for determining the quality and experience of legal professionals)? These questions are important to consider when deciding to hire an attorney.
6. Courtroom Experience
While a collection attorney can represent you in court, some prefer to act as legal consultants and simply send collection letters using a law firm letterhead. Many lawyers lack courtroom experience and skill because approximately 90% of legal actions never go to court.
Consult with Goldberg & Oriel
Boston Massachusetts law firm Goldberg & Oriel specializes in Commercial Debt Collection. We provide collection services for many kinds of clients and we have experience collecting delinquent accounts from debtors across the United States. Please consult with our firm if your business has any further questions or needs advice on how to best handle over-aged accounts.