I am often asked which option – collection agency or attorney – is the better option to recover money owed to a business. The short (and very true) answer is that it really depends on each particular business, each file and your collection goals. You also need to determine which files make sense to litigate? Are there assets to attach? Decide the cost vs. benefit of legal action. Here are some guidelines:

1. Compensation Type – Collection agencies usually get paid a contingency rate, which means that they do not charge anything up front, but retain a percentage of sums recovered. Some attorneys may also work on a contingency basis, but many will by the hour, or by specific action. Let’s look at specific examples. I received a file this week which is a $410.00 bill for lawn care. Client went to his attorney, who filed a lien and mechanics lien and charged 265.50. However, to perfect the mechanics lien in Maine, a lawsuit needed to be filed, and attorney wanted additional funds for a lawsuit. Client realized that any further out of pocket expenses made no sense and hired us. We are working on a contingency basis and will attempt to recover the debt plus the legal costs. Other attorneys will charge a flat fee to send a notice of claim (collection letter). If the letter works, it is a great way to collect money. If it does not work you have thrown good money after bad.
2. Asset search and research – Do you know if your customer has assets? Do you know where they work or bank? If you have a good deal of confirmed information on your client, and the size of a debt makes sense, you could ask your attorney to file a lawsuit. Once you have obtained a court judgment, you can attach assets. But if you do not have information on your customer, getting a judgment may be a waste of time. I recently looked at a file which was an uncollected judgment which they paid their attorney to obtain. The attorney had filed a judgment lien after receiving the judgment, but had filed it in the wrong county, which basically  made the lien useless. We were able to locate the home and file the lien in the correct county, thereby securing the interest of our client.

If you have a good number of smaller uncontested files and want a focused, ongoing collection effort that involves communication with your customers by letter and phone, then a collection agency is your best bet. Do you want delinquent customers reported to credit bureaus, or need research done to find customers who have moved? A collection agency is a good option here too.

A file involving a dispute that will probably result in litigation is best for an attorney. An attorney demand letter may be just the right thing to get you paid an avoid litigation, and is usually inexpensive. What happens if the letter does not work. We recently received a file that had not responded to an attorney letter. The debt was 1,000 and the letter cost our customer $150.00. paid up front. The attorney said he would need an hourly rate to continue working the file. We got involved and called the business every day until he paid the bill.

I get calls all the time from companies who have a large disputed case they want us to handle. I do not mean to say that collection agencies cannot handle disputed files – they can. However, if the only reason you are hiring a collection agency is to avoid paying an attorney retainer, then you may be making a big mistake.

If you want to hire a collection agency, find an agency with experience in your industry. Yes, you should look at the agency’s rates, but understand what is (and what is not) included in the rates.

If you want to hire attorney, ask them about their process if the initial demand letter does not get a payment. Do they follow up by phone? Do they have ability to research and find assets? Ask the attorney Are they going to handle the post judgment as well as the court hearings? Finally, find an attorney that understands collection law. The attorney who handled your divorce or drew up your will may not be suitable.

There are times when either option can get the job done, and you can make a decision based on the collection partner you think you can work with in the long term. Your best bet is to find a collection agency that has a relationship with experienced collection attorneys. That way, you get all the benefits of both approaches. It is one thing to go to court and get a judgment, but another thing entirely to collect on a judgment. The right partnership between agency and attorney will deliver judgments that collect!