RECOVERING BAD BUSINESS DEBT WITH THE HELP OF A COLLECTION ATTORNEY

Debt is an ugly word no matter where in the world you are, and if you are running a Business-to-business operation, you likely already know that these services and products often come at much higher costs than consumer-based businesses, and are also seldomly not offered on credit.

However, when bad debtors hold back on payments for goods or services rendered, the losses for your business can be more than substantial.

This presents a problem for businesses of all sizes; one that interrupts cash-flow, making it difficult for your business to meet its own financial obligations, and stopping it from being able to grow. Money, and more particularly, the flow of it, is the driving force behind the growth of any business. But if yours is constantly chasing after debtors, growth may well be an impossibility for you.

Because of this, businesses all over the world often hand over their collection processes to collection attorneys when they get out of hand. As a closely regulated but invaluable service to businesses, especially those that trade with others; sometimes recovering bad debt from unpaying clients is something that businesses need a little assistance with.

If your business is considering a debt collection services to claim back some of that much-needed cash-flow, hiring the services of a collection agency is a good way to go.

So, to help you make the best possible choice in this regard, let’s discuss what goes into deciding to hire a collector, when you should consider doing it, and what to consider when choosing a firm to represent you.

DECIDING WHETHER OR NOT TO HIRE A COLLECTION ATTORNEY

Before getting into contact with a collection attorney, there are a few things you should ask yourself to make sure that it is a viable option or even one that is warranted. Debt collection obviously comes at a cost to the business that enlists in the service, and for that reason, the price needs to be justified in terms of the amounts that are owed to you.

To help you decide whether or not you can benefit from hiring an attorney to handle collections for you, you should start by asking yourself the following questions:

HOW SEVERE IS THE DEBT OWED TO YOU?

This question is an important one to ask when justifying the cost of collection, versus the amount that is owed to your business.

In B2B setups the cost of goods and services sold on credit can be substantial enough to justify it, so too could the liquidity of the company you are collecting from.

In instances where collections need to be made from consumers, however, the price isn’t always justifiable for the funds being recovered; and there is always the chance that the debtor in question is actually unable to produce the necessary funds for doing so.

In some instances, collection agencies may not even offer collections on money totalling to below a certain amount; further proving that collections are not viable in every case.

CAN YOU AFFORD TO LOSE THE CLIENT?

Think carefully about the situation of the client you are collecting from.

If they have, up to a point, been a valued customer, have stood with your business for a long time, and may add value should they be able to ever meet their debt to you, it may not be a good idea to call a collection agency against them.

The very nature of debt collection can paint a fairly severe and unpleasant picture for debtors, and so you should probably expect the process to sour the relationship you have with the client. If you are not prepared to take such a risk, the collection may not be the best approach.

If, on the other hand, the debtor is one of those clients that detracts value from your business instead of adding to it, the collection may well be the best approach, since you won’t need to worry about the relationship breaking down over collections.

HAVE PREVIOUS ATTEMPTS AT COLLECTION FAILED?

When a debtor fails to pay what is owed to your business, it might be tempting to immediately hand them over to a collection attorney who can handle it all for you. Yes, this is a convenient approach, but it may not necessarily be a fair one.

Before getting the professionals involved, it is always a good idea to first try and recover the debt yourself; using, of course, only the proper channels for doing so. This will benefit you since you won’t need to pay any collectors for fees recovered, and will also ensure that you retain a favourable relationship with the debtor if you see no reason to sever business ties with them.

From the side of the debtor, this is also a fairer approach since there may be a good reason why those funds have not come in yet, and they may genuinely intend to pay your business what they owe to it.

If, however, you are feeling powerless to collect from debtors even after repeated attempts, if they are ignoring or avoiding you, and you have ample reason to suspect that they have no intention of meeting their obligation to you, debt collection might be the only viable option.

BEFORE YOU CALL THE PROFESSIONALS…

If you are considering the idea of hiring a collection attorney, there are a few things you should ensure that you have done first.

We touched on the first of these above, concerning whether or not you have tried, through legal means, to recover the debt yourself.

The two other things you should consider is the time it would take to do it yourself, and of course whether or not hiring a collection attorney is even worth it.

WHAT HAVE YOU DONE TO RECOVER THE OUTSTANDING DEBT?

In some instances, the case can be clear cut enough for you to make the decision to enact debt collection with confidence, but you should certainly try to do it yourself (if you have the capacity to do so) before calling for the assistance of an agency or firm.

Give the client a chance to honour their debt and you may save the relationship while getting what you are owed, without incurring any extra fees.

If repeated attempts at collection have failed, however, you might want to call a debt collector.

DO YOU HAVE TIME TO DO IT YOURSELF?

Things get a little trickier when you consider the juggling act that is running your business while also chasing up on payments due to you. This becomes even more time consuming when debtors are purposefully avoiding you.

Time is money, and yours is precious. So, if collection tasks are cutting into your productivity and turnaround times, you should consider homing in your focus by outsourcing collection to a collection attorney.

IS COLLECTION WORTH IT?

The next thing you want to give some thought to before calling a firm is whether or not the collection is even viable for the amount you are looking to claim.

There are, obviously, fees incurred with collection services. These may come as a percentage of the amount being collected, or it could be charged for at a flat rate.

Where collection services are charged for at a flat rate, you may find that you will recover very little after your fees have been accounted for. In such situations, it is definitely more beneficial to only opt for collection on large amounts.

Where collections are charged for as a percentage of the amount being recovered, some agencies may actually insist on a minimum amount to be collected before they agree to offer the service.

FINDING THE RIGHT DEBT COLLECTION ATTORNEY

Once you have answered the above questions and have arrived at the conclusion that your business will benefit from debt collection services, it is time to start finding the right firm to assist you with it.

This is a very important thing to consider, the wrong agency can result in a stain on your business’ reputation, particularly if their methods of collection are unorthodox. In some instances, debtors can actually hold your business and the agency legally accountable for the actions of the collector.

The following questions will help you find a collector that will ensure that the process goes as smoothly, and as fairly, as possible.

HOW EXPERIENCED IS THE FIRM?

Experience counts for a lot in just about any industry, in the field of debt collection, it counts for that much more.

A company that has been around for a long time likely abides by best practices and has a positive track record of successful collections.

They have also likely dealt with situations that are similar to yours, which further improves the chance of success.

ARE THEY REGISTERED WITH THE NATIONAL DEBT COLLECTION COUNCIL?

The National Debt Collection Act protects consumers from unscrupulous collection activities by ensuring that the industry is properly regulated and that agents claiming to be debt collectors are properly registered.

When hiring a debt collector, it is utterly essential to know that they are backed by the National Debt Collection Council and that they abide by their guidelines of fair practice.

Remember that your company’s reputation is at stake, so you need to choose a collection service that you know will go through the proper channels and processes.

DO THEY OFFER SKIP TRACING?

Skip tracing is often reserved for consumer debtors rather than business ones since it isn’t as easy for a business to skip town as it is for an individual.

Still, it is an invaluable service for a collection agency to offer.

Skip tracing is basically the ability of the collector to be able to locate defaulting debtors even when they go into hiding. Collectors use a variety of methods for doing this and can do it with fair degrees of success.

DO THEY HAVE ERRORS & OMISSIONS INSURANCE?

In some instances, the defaulting debtor can actually take you and the collection agency to court if any malpractice or harassment has occurred.

Even if they don’t really have a case to make, this can be a costly affair for your business. If they do have a case to make, it can be utterly damaging to your business as a whole.

Be sure, then, that the agency in question has Errors and Omissions insurance to ensure that they are able to protect your business, and themselves, should this ever occur.

DO THEY SPECIALISE IN YOUR INDUSTRY?

Your industry might be characterised by certain nuances with regards to how your customers pay you, what they are paying for, and how likely they are to honour these debts.

Speak to the collection attorney you are in contact with and ask them what industries they specialise in. If they mention yours, ask them what makes your industry unique.

The answer they give you will show you how much insights they have on collections in your industry.

HOW CLEARLY DO THEY COMMUNICATE?

At every step of the collection process, communication is important. The more in-the-know you are, the more comfortable you will feel about the agency doing the collections for you.

So make sure that they communicate clearly with you through every step, not just at the beginning and the end. If they are withholding any information from you, it is likely not a good sign.

HOW DOES THEIR COSTING MODEL WORK?

We mentioned the difference between the flat-rate costing model and the percentage of collection costing model above. Consider these fees very carefully. The flat-rate offer might sound appealing, but in some instances, it may actually work out to be more than a percentage of the collection.

CONTACT SIMPSON INCORPORATED ATTORNEYS FOR DETAILS

If your business is struggling with defaulting debtors, maybe it is time to call on the services of an experienced collection attorney in your area.

If you would like to find out more about our collection services at Simpson Incorporated Attorneys, be sure to get into contact with one of our consultants, or visit our website for additional information on our wide range of specialised legal services.

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