Collection Agencies

By Sylvia Rosen

Whether you use a collection agency or a lawyer, be sure to always ask for a client list before getting started. REX Features

If your letter writing, personal meetings and phone calls have all failed to resolve a debt issue, it is time to call in a professional -- a debt collection agency or a lawyer specializing in debt collection. It is important to do thorough research before you decide between debt collection and lawyers.

Collection Agency

A collection agency is the most obvious choice to collect an unpaid debt. Collection Agencies come in many different forms - some are local, some specialize in handling specific types of debts, and others are national. The cost depends on the volume of business you bring to the table and the amount of debt that is being collected. You should plan on paying 25 to 30 percent of the amount of debt being collected, with some agencies demanding a 50-50 split.

A collection agency will undertake the same actions against the debtor that you have taken. However, third-party collectors have specialized phone systems, computers, and software at their disposal designed to automate the process. Phone calls and a series of letters will be generated in order to warn of the consequences of ignoring repayment.

Law Firms

There are also lawyers who specialize in debt collection. They can be more effective than a collection agency, especially if the debt is serious enough and high enough to consider legal action. A debt collection attorney may charge an hourly fee or collect at least one third of the amount recovered, or both. There are also debt collection attorneys who will work on a contingency basis. If they do not collect, the business seeking payment does not pay. Collections attorneys usually charge a minimum fee or require the debt be of a minimum amount.

If you decide to pursue a judgment in court, payment to the attorney will be in addition to any court-related fees and charges connected with a lawsuit. If you're not inclined to take your customers to court over a past-due account, then there's probably no reason to hire an attorney in the first place.

Decisions, decisions

When choosing between agencies that focus on debt collection and lawyers, most companies refer debt to a collection agency first and then turn to an attorney if the agency can't do the job.

Take the case of a business owner who is owed $5,000 by one former customer. It is determined that the customer still is in business and is generating revenue every day. If the business owner gives this problem to a collection agency that retains 30% and the debit is paid in full, the cost to recover the debt is $1,500.

However, if the same debt is assigned to a collections attorney, the owner will pay around 50% whether on a percentage basis or contingency. In this example the cost of collecting the debt would be $2,500. The business owner saves $1,000 by assigning the debt to a collection agency.

If you choose to use a collection agency to recover the money you are owed, make sure to ask for a client list before getting started. Try to meet with the owner or manager of the collection agency before you turn over your debt.

You can inquire about the certification of collection agencies and legal experts with the Commercial Law League of America. A decision to hire should not be based entirely on price or percentage -- sometimes the promise of a higher fee can help motivate the collector to bring in more cash.