Creditors Play an Unrecognized and Powerful Role in the Debt Collection Process

Image courtesy of David Castillo Dominici / freedigitalphotos.net

While third-party debt collectors and collection law firms get the blame when it comes to collections calls, most people don’t think about the fact that it is a creditor that is responsible for the initiation of the collection activity, and creditors pay a large role in how the collection activity is carried out.  Debt collectors are paid only if they can recover payment for the creditor and they are required to follow the laws regarding collection activity. 

Creditors claim that it is important to them that debt collectors acting on their behalf are respectful when they make collections calls because the reputation of the creditor is at stake.  One reason for this is that third-party debt collectors are often working for creditors that the customer is likely to work with again in the future. 

Utility companies, hospitals, government agencies, etc. want to maintain a decent relationship with the customers to avoid potential problems in the future.  However, despite the claims of the creditors, they are not choosing collection agencies based on their ability to uphold the reputation of the creditors. 

As unusual as it may seem, choosing a service provider based on who can provide the lowest price is the bottom line when creditors choose a collection agency.  The average amount of money they recover, known as the recovery rate, along with the price they charge, is how most creditors select a collection agency to recover the money they are owed.  The creditors, it seems, care more about who can perform the job at the least expense, rather than which collection agency has the best trained employees and the least number of complaints. 

Creditors also claim that they are strict in what they will and won’t allow collection agencies to do on their behalf; however, their ultimate goal is to recover some or all of the money owed by each customer, and they make it clear to the collection agency they hire that the recovery rate is what is of most importance to them. 

Creditors are often large corporations or government agencies, and the reality is that regardless of how the collection agency they hire to recover debt treats their customers, many of the customers won’t have the option to discontinue future services.  

When Using a Law Firm to Collect Unpaid Debts Makes Sense

Let’s face it—consumers who have failed to pay their debts and are who are past the point of worrying what it will do to their credit aren't going to always pay attention to collection calls and letters, particularly if they have lost a job, changed their phone number or moved.  In situations when you have tried every method of communication possible and the debtor still refuses to work with you, it might be time to use a law firm to collect on the unpaid debt, especially if the debt that is owed to you is a significant amount of money.  

  

First of all, a letter or phone call from a law office tends to carry a lot more weight in the mind of the debtor than a letter from a collection agency.  Since most collections agencies have their calls and letters on an automated process, while the communication might be sternly worded, most will not go through with judgments or lawsuits in order to receive payment.  A lawyer, however, is fully prepared to initiate a lawsuit on your behalf when the debtor refuses to pay or make payment arrangements. 

This is why lawyers who specialize in debt collection are more much more effective than a collection agency tends to be.  Therefore, if the debt is significant, you should hire a debt collection attorney.  When you do hire a lawyer, you should be prepared to show up in court and go through the entire legal process (including court fees and retainer fees) to collect on the debt that is owed to you. 

However, using a law firm is usually a last ditch effort because law firms often demand a 50-50 or one-third split of the collected debt.  Also, since lawyers tend to handle specific types of debt collection cases, it might be difficult at first to find the right attorney who specializes in the types of debt owed by your nonpaying clients. 

Why do Collection Law Firms Outperform Collection Agencies?

To ask the question ‘What has a better outcome- a collection agency or a collection law firm?’ is the same as asking ‘What is better, a diner or a 5 star restaurant?’.  Both offer food, however one obviously excels over the other.  In this case, it just so happens to be the collection law firm that excels.

One of the main reasons why a collection law firm out performs a collections agency is based on the fact that collection law firms have much more legal rights.  An agency cannot perform nearly as many duties as a law firm.  

A collection agency is merely an agency.  They can make phone calls and write letters.  That is basically the extent of their legal boundaries.  If the debtor doesn’t pay, there aren’t any real consequences coming from the agency.  This is where the law firm and agency differ.  A collection law firm is able to all of the same things as an agency; however they can also file suits.  Debtors are typically much speedier in payments if they know a credit hurting suit can be filed against them.  

Also, in the long run, a collection agency can potentially cost you more money.   When a collection agency is not able to collect, which is often, they have to then turn the case over to an attorney who can file a suit.   This leads to more money being paid out by the one who is seeking a collection.  The most efficient thing to do is to just cut out the middle man (the agency) and hire the attorney in the beginning.  

It’s also important to consider the types of people that will be taking your case.  With a collection firm you are guaranteed to have educated, motivated individuals who will be able to know the full realm of your claim. A collections agency cannot grant the same expert treatment that you will receive from a collections attorney. 

With that being said, it really does depend on the size of the debt that is being collected.  While law firms stand strong on their legal ground, collection agencies have call centers, and technological features, that simply cannot be matched by a law firm.