The primary and most significant difference between collection agencies and commercial debt collection attorneys are the tools they use to pursue and recover debts on a business’s behalf and, consequently, the effectiveness of their efforts. Collection agencies typically send demand letters and follow up with phone calls. Most business creditors have already tried these tactics to no avail. Further, collection agencies have no teeth behind their demands, meaning they are limited to just making harassing phone calls or writing letters, they cannot use the legal system to back up their threats unless they hire an attorney.
Fees to collect debts vary among different collection agencies but a typical fee is 25 to 40 percent of the amount collected with some agencies charging as much as 50 percent. Many collection agencies also write into their contracts a clause that requires a higher fee if the collection is turned over to an attorney as they will then have to pay that attorney to collect the debt on their behalf. Because most of the individual collectors are paid a commission on their collections, they tend to hold onto the collections for as long as possible all the while lacking any real bite to get the business debtor to make acceptable payment arrangements. Further, in the likely event the collection agency will need to employ a law firm to collect the debt, the collection agency continues to be the main point of contact for the debtor rather than dealing directly with the law firm which further diminishes the effectiveness of collecting the debt. Attorney fees charged to collect debts vary from law firm to law firm with most attorneys charging either hourly or a percentage fee between 25 and 40 percent with the client paying the costs associated with any lawsuits filed. Our law firm always discusses fees up front and we always give our clients the option of paying an hourly rate or a contingent percentage whereby no fee is collected unless a recovery is made on the client’s behalf. In some circumstances, the client desires only certain services such as a demand letter or the domestication of a sister state judgment in which case a flat fee arrangement can be made.
Unlike collection agencies, attorneys are able to immediately enforce collection of the debt or judgment through the court system and the many enforcement measures it provides. For example, when our law firm sends a demand letter demanding that acceptable payment arrangements be made within a certain amount of time and threaten to file a lawsuit when acceptable payment arrangements are not made, we are capable of following through with actually filing the lawsuit that day and starting the legal process and thereby forcing the debtor business to decide to either come to acceptable terms or hire an attorney to defend the lawsuit. We also do all the work ourselves from communicating with our client to preparing demand letters and all pleadings and discovery served once a lawsuit is filed. Collection agencies put matters in the hands of employees who have no formal legal training and are usually not on the job for very long as collection agencies generally have a high turnover rate.