Lawyer Versus Debt Collection Agency: Collecting on Bad Business Debt

If you have exhausted all of the usual methods used to collect on an outstanding business debt (letter writing, phone calls, and meetings) it’s time to call in the “big guns.” Generally, businesses seeking to recover some part of their delinquent accounts will either enlist the services of a debt collection agency or hire a lawyer who specializes in debt collection.

 

Which is the best way to go? The answer is that it depends. Many companies turn to a collection agency to collect their unpaid debt. The cost for the agency’s services depends on how much business is being brought in as well as the amount of debt that needs to be collected. Fees typically range from about 25% to 30% percent of the amount collected; though some agencies demand a split down the middle.

The main advantage to going with a debt collection agency is that they shoulder the burden of sending collection letters, making calls, and negotiating payment without charging the more exorbitant fees of an attorney. Business owners and their employees are thus free to focus on the important things- like running a business. Moreover, business owners who put an effort into finding a collection agency with a proven track record, can also take advantage of their experience in getting debtors to pay up. As a whole, the debt collection industry is growing and businesses on average can expect to see about a 20%-30% recovery on bad debt.

What about lawyers who specialize in debt collection? Choosing to go with an attorney can actually be more effective than a collection agency, especially in cases where legal action is a serious option. Most attorneys charge a minimum fee or require that the debt be of a minimum amount. If a business owner decides to take the debt to court, the attorney’s fees will be added to any court-related fees and charges connected with the lawsuit.

Many companies hire attorneys only after a chosen collection agency has failed them because they assumed the collection agency would be the cheaper option. But this is not always the case. While sometimes debt is quickly collected after a collection agency is brought in, the debt collection process can often be complicated and drawn out. In many cases it may be simpler to just hire a lawyer and go to court. Business owners should keep in mind, however, that if they are not planning to take delinquent customers to court, then they don’t need to hire an attorney.

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