I have written about the difference between hiring a collection agency or attorney before, and yet I continue to receive inquiries about it. There is no cut and dry answer to this question, but there are certainly examples of what happens when a debt collection file is sent to the wrong party.
In any business relationship, your first consideration has to be hiring the party you believe is best equipped to do the job. You should ask colleagues, friendly competitors, and check references before you hire any business partner, but make your decision based on facts, not emotion.
For example, do not hire a collection agency simply to “ruin” a delinquent customers credit by reporting that debt to a credit bureau. First, collection agencies work on a contingency rate basis, so they are not going to get paid unless they get you paid. They are not paid to settle your vendettas or help you extract revenge. It is not personal, or never should be. Your goal in hiring a collection should be simple: getting paid.
Last year, I received a $ 1,100 file from a small business owner that had previously been placed with an attorney. The attorney was a very good generalist who had not had experience with collecting bad debt. He charged the business owner an hourly rate to review the file and send a demand letter. The attorney did not collect any money and presented a bill for $350.00. He told the business owner that the debt was uncollectible, and that his best bet was to send the file to a collection agency to, “at least get even” by asking the collection agency to report the debt.
What’s wrong with this idea? Tons. First, this particular debt was a commercial debt owed by a business, and without a personal guarantee, the business owner could not be held personally liable, and the debt could not be reported against his personal file.
Secondly, at the time of default, the business owner had the opportunity to file a mechanics lien, which is a time limited option to secure payment of the debt. By the time we received the file, it was too late to file the lien.
We did successfully recover some money for this client, but his cost of collection was much higher because he started off in the wrong place.
Similarly, we received a call to collect several small claims judgments that had been obtained by an attorney on behalf of a small business. The attorney charged a fee to obtain the judgment but once the judgments were obtained, told the business owner that he would have to hire a collection agency to collect the money. Insult to injury!
In both cases, I asked the customer why they had not selected a collection agency first. Both told me that they had, “heard a lot of bad things about collection agencies” and that their attorneys had told them that all collection agencies do was to send “toothless” letters and report to credit bureaus. That may or may not be true for some agencies, but it is certainly not the norm.
Ask questions. Focus on your goals. Keep your eyes on the prize – recovering as much money as possible.
