Metermaids notwithstanding, there aren't too many jobs with a worse reputation than debt collectors.
In those grainy old noir movies, they're guys with square hands and blackjacks, the sort of goons who corner you in an alley and ask if you enjoy having working kneecaps. In less cinematic settings, they're the folks who harass you during dinner, who send strongly worded letters, and who ruin people's credit.
Of course, you're more likely to find these stereotypes in fiction nowadays. With the advent of the Fair Debt Collection Practices Act of 1978, it's illegal for debt collectors to harass debtors, lie, cheat, or use any unscrupulous means to collect on outstanding accounts. Sure, being contacted by a collector is still an unpleasant feeling, but there's no need to worry about falsifications, 2 a.m. phone calls, or frothy goons, cracking their knuckles.
We mention this because sometimes, business owners need to call in the big guns to collect on debts they're owed. And if you're in that situation, it should give you peace of mind to know that debt collectors aren't the boogiemen they once were.
But how do you know when to call in a debt collector? If you do call one, how do you make sure they're scrupulous and legitimate? And should you ever consider a debt collection attorney?
Let's unpack these issues and take a look.
First, exhaust your other avenues
If you have a debtor who's behind on their payment, do not make a collection agency your first course of action. Not only will this come off as overly aggressive, but you'll be immediately sacrificing any hope you have of getting paid in full. After all, debt collectors and lawyers will charge fees and/or percentages of the overall debt if they secure payment for you. But we'll get into that later.
So how do you exhaust your other avenues? In truth, what you'll be doing is a lot of what the debt collector themselves will end up trying: letters, phone calls, payment restructuring, and, if necessary, a discounted debt to at least get some return on what you're owed.
But one thing to keep in mind: start out being polite and escalate the situation with professionalism. You have a much better chance of getting paid if you're cordial from the get-go.
Next, decide between a debt collector and a lawyer
So your letters, phone calls, and entreaties got you nowhere? It's time to enlist the services of a professional. But which professional do you hire: a lawyer or a debt collection agency?
For starters, it's always a good idea to get the counsel of an attorney. They can advise you whether pursuing the matter through civil court or a collections agency is worth the time and expense. Moreover, they will often write demand letters for you on legal stationary. This sounds like a small thing, but it isn't. Sometimes, a professional correspondence from a practicing attorney will motivate your debtor to pay up. After all, debtors don't want to end up before a judge, explaining their motives for not paying you.
If your attorney's letters go unanswered, you need to decide whether you'll proceed with a collections agency, a lawyer, or drop the matter entirely. If your debt is fairly large and you're willing to head to court for a judgement or a lien, then a lawyer might be your best option. But know this: if you're not willing to take your client to court, it's probably not worth hiring an attorney to chase it up.
On the other hand, you could hire a collection agency. Agencies have automated systems that follow up with your debtors, and with so many different collectors out there, you can likely find the one that fits your business type or your debt size. You'll just have to do some research. Collection agencies tend to cost less and their business exists because they are successful securing what their clients are owed, but that isn't a hard and fast rule.
Price out both options and see what's right for your business and the debt you're trying to collect. Give both a debt collector or a lawyer copies of the pertinent receipts and letters you've sent to the debtor. They'll need to show proof while collecting.
Then, choose the right professional
No matter if you choose and agency or a lawyer, you need to do a little research on who exactly you're hiring. Debt collection agencies come in all flavors — some specialize in certain fields, like home improvement debts or loan repayment, whereas others are nationally based and can more quickly find debtors who have moved without a forwarding address.
If you've decided that you're going with a debt recovery agency, find one that specializes in your field. Make sure they have the right licenses and if they use "skip tracing" (which can help locate debtors who've skipped town.) Verify they have insurance, and, if possible, check references.
You can read our "Five Tips for Hiring a Debt Recovery of Debt Collection Agency" for more detail.
You should look into similar issues when you're hiring an attorney. What's their track record? Do they specialize in your specific debt? Can you speak to their references? And will they represent you in court if it gets to that point? Make sure you get the answers you need. Ask the attorney what their strategy will be and how they follow up with you.
And though it might go without saying, check the fee structure for whichever professional you've chosen. After all, this is about getting paid what you're owed. You don't want to spend all of what you'll end up with and have nothing to show for the headache.
Okay, now what?
Sign a contract and relax.
The best part about choosing a collections agency or an attorney is that you can finally take your mind off collecting debt. After all, you've outsourced the problem to a pro. If you've chosen smartly, they'll collect in a lawful but persistent manner and you can get back at least a portion of what you're owed. Sure, it might not be a perfect solution, but it beats calling in the goon squad.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.
