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Should You Hire a Debt Collection Attorney for Your Business?
Learn when it makes sense to bring in outside professional help to recover debts from nonpaying customers.
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In business, there’s always the looming worry of doing great work for a client who never pays. Though frustrating, this scenario doesn’t leave you entirely without recourse ― you can always take legal action to try to recover the money you are owed. In this case, you’ll need a debt collection attorney on your side. Before proceeding down this road, it’s crucial to understand more about debt collection lawyers, what you should know when hiring one and how they differ from collection agencies.Editor’s note: Looking for the right collection agency for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.
What is a debt collection attorney?
A debt collection attorney is a lawyer who works with you to develop legal strategies for recovering debts from nonpaying clients. Their work often involves completing and filing paperwork for you. If your case goes to trial, they typically represent you in court.
On the flip side, some debt collection attorneys represent debtors. In these instances, they work to protect those who are being sued.
When would you need to hire a debt collection attorney?
You might need to hire a debt collection attorney in the following situations:
- You expect your case to go to court: Sometimes, you’ve been chasing a debt for so long that only a legal judgment will help you get your money. In this case, you should hire a debt collection attorney. Although you can theoretically represent yourself in court, a professional with expertise in the relevant laws is far likelier to get a ruling in your favor.
- You need to send demand letters: Let’s say you expect your case to go to court but would prefer not to sue the party that owes you money. That’s where demand letters come in. With these legal documents, you’ll share your side of the story and tell the client they won’t face legal action if they pay a specific amount. Sometimes, when nonpaying clients receive these documents, the idea of legal action compels them to pay before you sue. A debt collection attorney can help you write compelling, legally sound debt collection letters.
- Your client owes you at least $5,000: Some debt collection experts recommend hiring a debt collection attorney anytime a nonpaying client owes you $5,000 or more. In general, as long as a debt is large enough that the cost of legal representation seems worth it to proceed to court, hiring an attorney is a good move.
- Your client is a large company: Larger businesses usually have more resources to fight collection attempts. Debt collection attorneys often understand how large companies use workarounds to avoid payment; they can help you as you seek corporate debts.
- You need legal advice: Unlike other debt collection measures, a debt collection attorney can provide you with legal advice and file lawsuits on your behalf.
What to consider when hiring a debt collection attorney
Consider the following crucial factor when you’re looking for the right debt collection attorney:
- How much does the debt collection attorney charge? The cost of filing a court case to recover your debts often reaches the high hundreds of dollars. If successful, you’ll likely have to pay one-third of your recovered debt and perhaps additional fees to your debt collection attorney. As you search for attorneys, ask each candidate about their fee structure ― and ask yourself whether you can afford the costs of going to court.
- Are the debt collection attorney’s skills appropriate for your case? Some debt collection lawyers are skilled at winning cases against large companies but have no clue how to handle small business debts. Ask candidates to share their track records so that you can see where they excel and where they lack experience. Then, if you do go to court, choose the lawyer with the best skill set for your needs.
- Does the debt collection attorney specialize in your debt type? Debt collection cases vary widely. Ensure you hire a debt collection attorney who understands the type of debt you’re seeking to recover. For example, say you want to recover debts tied to small business equipment rentals. A debt collection attorney with experience in large corporate debts may not be the right professional for your debt type.
- How well does the debt collection attorney communicate? Lawyers can be quite busy. Still, they should be able to communicate with you appropriately and be responsive to your questions. Ask any potential attorney how often they’ll update you and if they will contact you via phone, email or text. Your initial communications may indicate their communication style, so pay attention to their responsiveness before you hire them.
- How are the debt collection attorney’s references? A trustworthy debt collection attorney should have a list of references ― ideally past clients ― readily available. They should also have no issue connecting you with these references. Use what you learn from these references to gauge whether the attorney is right for you.
- Does the debt collection attorney work independently or within a firm? An independent lawyer may work outside a firm because their strategies work best when they get to run the show (and if you’re a freelancer collecting debt, you can probably relate). However, independent lawyers may lack resources ― including time ― that firms can more easily access.
- Will the debt collection attorney represent you in court? Not every debt collection attorney will represent you in court if it comes to that. Some prefer to work as consultants who never set foot in courthouses. If you don’t know this preference beforehand, you could be left in the lurch if a lawsuit is necessary. If you need a lawyer who can go to court, ensure that’s what you’re getting.
Hiring a debt collection attorney vs. hiring a collection agency
When you’re owed money, you may weigh the pros and cons of hiring a collection agency vs. hiring a debt collection attorney. While both resources can help you recover debts, one option may be better than the other in specific circumstances.
Consider the following factors when choosing between an attorney and an agency:
- How much will your debt collection resource cost? Some collection agencies may charge 25 percent of your debt to work for you and some may even charge 50 percent. A 25 percent fee is probably less than what a lawyer will cost, while 50 percent is likely more. Consider your most affordable option. However, in some cases, a court judgment in your favor will require your debtor to cover your attorney fees, so your fees might not ultimately matter.
- How likely is the debtor to pay? If you’re unsure how likely the client is to pay, try starting with a collection agency. If it’s clear that your client has no intention of paying, going straight to a lawyer can save you time and possibly money.
- How urgent is the debt collection situation? Collection agencies can’t directly compel debtors to pay or file lawsuits that inch you closer to your goal. In contrast, debt collection attorneys can file demand letters on legal letterhead that compel debtor action even before a formal lawsuit. Additionally, only attorneys can represent you in court and help you get a binding ruling from a judge.
- Are you willing to go to court? If you’re not interested in taking your case to court, hiring a debt collection attorney may not be worth the trouble and expense. You may be better off pursuing collections with a debt collection agency.
Tips for handling client debt collection
You don’t have to hire an attorney or collection agency immediately after a client misses a payment or two. Here are a few intermediate steps to take before the situation escalates:
- Communicate clearly about what clients owe: Check in with your client regularly to discuss the unpaid debt and determine if payment is coming. They may need additional time to pay or be unclear about the amount they owe. Stay professional and courteous at all times to maintain positive customer relationships.
- Show clients compassion and understanding: As you communicate with nonpaying clients, you may learn that they’re going through a rough time or are experiencing obstacles that make paying you difficult. Be open to solutions like accepting payment plans or extending their terms. While you don’t want to be taken advantage of, a little understanding can solidify client relationships and encourage them to continue doing business with you.
- Document all communications: Ensure you document all communications relating to your efforts to collect the money you are owed. Note emails, phone calls and texts and any agreements that were made. While no one wants to take a client to court, having all the necessary documentation will make the process easier if it’s unavoidable.
- Stay persistent in your debt collection efforts: Debt collection can take time. Stay persistent and open to communication with your client to ensure the best results.
Hiring a debt collection attorney
If you’re a business owner dealing with nonpaying clients, understanding your options is essential. Hiring a debt collection attorney can be a helpful choice if a nonpayment situation has escalated and you’ve given up on the client’s likelihood of paying you voluntarily. Legal advice can be invaluable in situations where you want to do the right thing and are unsure how to proceed.
Gem Siocon contributed to this article.
